Oil Industry Faces Tough Road

An oil refinery in Chalmette, Louisiana (image: earthware.com)

Although they were hit hard by plunging oil prices at the end of 2008, most major oil corporations still came out of the year with hefty profits.

2009 could be a different story.  The economic downturn has deflated demand for oil around the world, keeping the price of crude more than $100 below its peak of $147 a barrel last July (crude closed at $39.70 today).  Companies have already begun to scale back spending on new exploration and refining projects in an attempt to meet low demand.  But the companies must walk a thin line between cutting production enough to save money and cutting too much so as to cause another major price spike, as occurred in 1998, the Associated Press reports.

Oil companies will also feel the heat of a radically different energy policy currently being outlined by the new Obama Administration.  Obama repeatedly called for more stringent regulations on greenhouse gas emissions during the campaign, and sent clear signal by appointing physicist Steven Chu, a Nobel Laureate who has spoken out strongly about the threat of global warming, as Energy Secretary.  New, stricter federal restrictions on greenhouse gas emissions will most likely come from the White House in the near future in the form of a cap-and-trade system or carbon tax.