Oil continues to drop to lows not seen in almost two years as the global markets plumb the bottom of the financial collapse.  Yesterday’s trading closed below $55 per barrel despite OPEC warnings of production cuts:

Oil dropped to a 22-month low under $55 on Thursday as evidence piled up global recession would have a deep impact on demand and news OPEC might take more emergency action did only a little to halt the sell-off.

U.S. crude futures were 19 cents firmer at $56.35 by 1158 GMT, recovering from a session low of $54.67 — the weakest level since January 30, 2007.

London Brent crude fell seven cents to $52.30.

The International Energy Agency on Thursday in a monthly report slashed its global oil demand growth forecast for next year and said this year’s increase in consumption had been the slowest since 1985.

Growth forecasts got cut in half from last month, and traders foresee a glut on the markets throughout 2009.  A global recession will curtail need for expanded energy use, and speculators — remember them? — aren’t buying oil futures as a result.  OPEC has twice warned that they would defend specific price levels, only to see the market ignore them completely.  They’re in danger of becoming irrelevant.

This has ramifications far beyond the gas pumps, where prices have returned to 2006 levels.  Domestically, the ambitious programs of the Democratic Party relied in part on the ludicrous “windfall profits” taxes that Barack Obama pledged to impose on the oil industry.  Revenues and profits will tumble on these prices, removing that revenue source from the incoming administration.  Either Obama will have to scale back his programs or massively increase tax revenues from other sources.

Internationally, though, the lower price will help kneecap Iran, Venezuela, and Russia.  Venezuela’s crude is only desirable when other sources cost too much; otherwise, their sulfuric crude is a poor alternative to other oil, and the price will fall even farther for Hugo Chavez’ product.  Iran and Russia built their economic and military strength on expensive oil.  Now that the price of oil has collapsed, both countries will have enormous hardships in maintaining their militaries, their internal security, and their ruling regimes.  Vladimir Putin in particular will now have to start making nice with the G-7, as Western financial assistance will almost certainly be required to keep Russia afloat.

Overall, though, the traders are betting on a long, hard recession throughout most of 2009.  That prediction appears to have grown stronger since the election of Obama and his soon-to-be-adopted economic policies.