The Energy Department said it expects US consumption of petroleum to drop more severely than any time since 1980 next year, with gasoline use dropping by another 3 percent. Its Energy Information Administration on Wednesday said 2009 petroleum consumption is projected to sink by a further 250,000 barrels per day, or 1.3 percent, more twice that projected in its previous outlook.
Also on Wednesday, the International Energy Agency said more than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy.
Light, sweet crude for December delivery fell nearly 6 percent, or $US3.50 to settle at $US56.16 a barrel on the New York Mercantile Exchange, the lowest closing price since January 2007. Oil prices have plunged more than 60 percent in four months from record highs near $150 in July.
"We're seeing a massive readjustment on a historic scale," said Phil Flynn, an analyst at Alaron Trading Corp. "We've never gone through anything quite like this."
The Bank of England warned that it expects inflation to fall below its target of 2 percent next year as the economy contracts, stoking expectations the Bank will slash interest rates again to ward off the risk of deflation.
On Wall Street, the Dow Jones industrials fell more than 400 points, and all the major indexes dropped more than 3 percent as the market retreated for a third straight session.
Trader and analyst Stephen Schork said oil price fluctuations after the announcement of a massive stimulus package in China earlier this week signaled a nervous market.
"It is important to remember that price is a function of the crowd's emotional input to a given fundamental event," he said in a research note. "Thus, those traders who thought it was a good idea to pay $65 Sunday night were probably the same traders who had to sell (at) $59 yesterday afternoon."
Investors have brushed off two recent production cuts by the Organization of the Petroleum Exporting Countries, and prices have continued to fall amid talk of a third quota output reduction next month.
Qatar's prime minister, Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, said Tuesday that "fair" oil prices of between $70 to $90 per barrel would ensure that expensive oil exploration could continue and help to avert price spikes in the future.
But OPEC's power to control prices appears to be slipping away.
"The market has become so demand-focused that obvious support mechanisms, like OPEC cutting supply, don't have the same impact," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. He expects prices to fall to $45 a barrel during the first quarter of next year.
Flynn said he expects the oil market will find a bottom of around $50 a barrel or slightly lower before prices slowly work their way back up. "At some point, prices will go back up, but the big question is when, and that's when the economy bounces back," he said.
Rising demand in the developing world and surging production costs prompted the International Energy Agency Wednesday to nearly double its forecast for the price of a barrel of oil in 2030 to just over $200 in nominal terms, compared to its forecast last year of $108 a barrel. Measured in constant dollars, the agency pegs oil at $120 a barrel in 2030, up from last year's forecast of $62.
Over 2008 to 2015, the IEA predicts the price to average $100.
The Department of Energy said its current expectation of future oil prices of $60 to $65 per barrel throughout 2009 assumes that OPEC's production cut may limit, but not reverse, the recent sharp fall in oil prices.
"The condition of the global economy is expected to remain the most important factor driving world oil prices," the department said in its outlook report.
Total domestic petroleum consumption is projected to average 19.6 million barrels per day in 2008, down 1.1 million barrels per day, or 5.4 percent, from the 2007 average - the largest decline since 1980. Gasoline consumption is projected to decline by 280,000 barrels per day. Consumption of distillate fuels, those used by industries from railroads to agriculture, is projected to decline by 250,000 barrels per day, or 6 percent.
Gasoline prices have fallen more than 46 percent since hitting a record national average of $4.11 early in July.
The average price for a gallon of regular unleaded on Wednesday dipped a couple of cents to $2.20, according to auto club AAA, the Oil Price Information Service and Wright Express.
Web site GasBuddy.com, which lets consumers post prices they spot, said stations in the Kansas City and Indianapolis areas were selling regular for less than $1.70 a gallon, and one Kansas City area station was charging $1.61.
In its Wednesday report, the IEA predicted global energy demand will rise 1.6 percent per year on average between 2006 and 2030, but it expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 - 10 million barrels per day less than projected last year.
Flynn said commodities are going through a classic boom-to-bust cycle, and he thinks the agency wants to make sure that people don't overreact to the slowdown.
"I think the fear of the International Energy Agency is that we're going to forget how tight supplies can be when the world economy's on fire and go back to kind of a complacent role in energy and create the stage for the next energy crisis years down the road," he said.
Investors will be watching for signs of slowing US demand in the weekly oil inventories report to be released Thursday by the US Energy Department's Energy Information Administration. The report is expected to show that oil stocks rose 1.1 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also showed that analysts projected gasoline inventories rose 850,000 million barrels and distillates increased 1 million barrels last week.
In other Nymex trading, heating oil futures slipped 9.3 cents to settle at $1.835 a gallon, while gasoline fell more than 4 percent, or 5.7 cents, to $1.248 a gallon. Natural gas for December delivery tumbled 30 cents to $6.405 per 1,000 cubic feet.
In London, December Brent crude plunged $3.34 to settle at $52.37 on the ICE Futures exchange.
