December 17, 2008

OPEC makes record cuts, oil prices tumble due to deep recession

POLITICS - OPEC oil ministers agreed upon their deepest oil cut ever today, slashing 2.2 million barrels per day from oil markets in a race to balance supply with rapidly crumbling demand for oil and gas. Demand for gasoline in the United States over the four weeks ending Dec. 12 was 2.7% lower than a year earlier.

The 12 members of the Organization of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July 2008 peak of $147 a barrel.

But despite that, oil prices today still fell nearly 5%, or $2.07, to $41.53 on the New York Mercantile Exchange amid a growing recession and whispers of a depression.

The recession will be long and deep, with the global economy seeing "only gradual and in some cases disappointing economic recovery" in 2010, Bank of Nova Scotia economists predict.

Most developed countries will see "virtually no economic gain" until 2011 or 2012, and even then the rebound will be slow, Scotiabank chief economist Warren Jestin announced today.

So what is the difference between a deep recession and a depression?

A recession is 6 or more months of GDP (gross domestic product, based on manufacturing) decline. A deep recession means a more severe decline in manufacturing GDP, likely the result of millions of laid off workers.

A depression is a severe or prolonged recession which lasts years.

There is no widely agreed upon definition for a depression, but the current recession the United States is in started in August 2007 with the collapse of the housing market and the American dollar losing 17% of its value (effectively the American economy shrunk 15% compared to the global market in 2007) and looks like it will last until the middle of 2009. So does two years qualify as a depression. Possibly.

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