Oil trend will likely be clear by end of January

We're not more than a few weeks into the new year, and already it looks like the dominoes are in a row and ready to topple, as US gasoline prices rise for the first time in months.

The ripple effect is in motion as well, as Arabian Gulf markets closed down on the assumption - most likely a correct one - that low crude prices would take a substantial bite out of government spending.

Bloomberg is reporting that the Abu Dhabi Securities Exchange General Index dropped 1.1 per cent on Sunday, with a three-day drop of 2.2 per cent. The drop was about on par for exchanges around the region.

So here is what we're looking at. The Organisation of Petroleum Exporting Countries (Opec) nations are cutting production in line with plans laid out in November and December. Saudi Arabia is already looking to cut its crude output by as many as 300,000 barrels per day, a mark below even the Opec target. Already, the UAE, Iran, Kuwait, Libya, and Algeria have cut production since Opec's last meeting mid-December.

Angola is looking to cut crude output from 1.83 million barrels per day to 1.6 million in line with Opec's cuts, and has told oil companies in the country to reduce output in January to meet those markers.

Those cuts are going to constrict the supply enough in the long run, that demand will climb even in the US, and world, economy continues to linger in lukewarm territory.

As production shrinks, I'm not at all surprised I'm watching prices at the pump climb again.

However, not everyone feels the same way I do.

For first time in over two decades, the United States' rate of oil consumption this year is expected to remain essentially flat, according to the Energy Information Administration (EIA).

Although EIA's Annual Energy Outlook for 2009 states that the organisation expects almost no growth in US oil consumption for the first time in more than 20 years, I think it overstates the availability and probable use of alternative energy sources.

Remember the hoopla when food prices skyrocketed around the world, and the resulting backlash against biofuels? The underlying problems with the tug-of-war over crops for food or fuel haven't changed. And the downturn in the price of crude has cut investment into alternative energy.

The organisation is also predicting that the price for crude oil will average $63.53 per barrel in 2009.

While I feel that is a solid price for crude, I'm still highly concerned that demand will not be as stagnant as predicted, and both China and India could continue to demand fuel for their economies.

Once again, when you pair stronger than expected demand with those concerning Opec cuts, I still maintain we're going to hit an uncomfortable high even if crude does eventually settle around the $60 per barrel mark.

Still, the release of a US report showing employers there cut 524,000 jobs in December - which boosts the unemployment rate to its highest level in nearly 16 years - is going to keep the spectre of decreased oil consumption alive.

The big unknown here is what effect US president-elect Barack Obama's economic stimulus plan will have. Unveiled this last week, the plan could inject $775 billion into the US economy, a number that some economists predict should, and could, reach $800 billion to $1.3 trillion.

Even then, any turnaround isn't expected until the second half of 2009.

Hopefully the picture will be clearer by the end of the month.

- The writer is a freelance journalist based in Alaska, USA.