The price of oil continued declining today as investors bet on a long recession.  Despite OPEC’s plans to scale back production, oil dropped below $34 per barrel in light of a glut on the market and no increase in demand in the immediate future.  That will help the US ease its economic woes, but bodes ill for the global economy (via Instapundit):

Oil prices fell below $34 a barrel Tuesday on the continued gloomy outlook for global energy demand and as traders sold the expiring benchmark contract due to a lack of space at a key U.S. storage facility.

By midday in Europe, light, sweet crude for February delivery was down $3.14 to $33.37 a barrel in electronic trading on the New York Mercantile Exchange.

The February contract expires Tuesday. Its last official settlement was $36.51 on Friday, as U.S. markets were closed Monday due to Martin Luther King Jr. Day. Nevertheless, electronic trading continued during the holiday and the February contract fell $1.96 to $34.55.

The February contract has fallen about a third in two weeks, in part because burgeoning supplies in Cushing, Oklahoma, the delivery point for the Nymex contract, have left investors with little space to store crude, forcing them to sell.

They literally have no place left to put the oil.  It’s almost a fire sale, as production has far outstripped demand.  Owners have begun to use tankers to keep oil offshore while they try to find storage for the commodity, which increases the cost and the pressure to sell.

The oil market has almost crashed in the last few months.  It has lost 80% of its value, far outstripping the losses on Wall Street.  While the peak was overvalued, the astonishing drop in prices will eventually threaten investment in future production as capital gets destroyed in the collapse.  Low prices will especially threaten American production, which is costlier than foreign imports.  In order to make American production viable, prices need to be considerably higher than they are at the moment — and that will threaten the Drill Here, Drill Now policies that Republicans championed over the summer.

On the other hand, as we’ve noted before, low prices help contain some very nasty players on the international scene.  Hugo Chavez and Mahmoud Ahmadinejad no longer have all that excess cash with which to fund terrorists and oppress their own people.  Russia has fewer resources for military adventurism in the Caucasus.  The collapse in oil could eventually bring a collapse in a few regimes, and that may well be worth the costs.