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Oil prices, and nearly everything else, were dominated by the course of the $700 billion liquidity bill through Congress last week. On Monday oil fell by a record $10 to $95 a barrel after the House of Representatives rejected the first version of the bill. By the next day however, oil was back up to $102 on hopes that a similar bill would pass later in the week. By midweek, the markets began to appreciate that while the $700 billion might unfreeze credit markets it was unlikely to help the deteriorating economic situation or increase the demand for oil.  A stronger dollar and new reports of lower US oil demand kept pressure on oil prices all week. After the house passed the $700 billion rescue plan on Friday, oil fell and closed at $93.88 as concerns about the continuing economic slide outweighed the perceived benefits from the bill’s passage. By this morning, oil was below $90.

The EIA published revised estimates for July showing consumption to be 736,000 b/d less than previously reported. Demand in July was 6.4 percent less than in July 2007.

The $60 a barrel drop in oil prices since July has led to much talk about further declines all the way to $50 a barrel if the economic situation gets worse. These forecasts seem to discount the role of OPEC in supporting prices. The average price that OPEC members received for their crude slid below $90 a barrel last week and the muttering about low prices inside OPEC continues. If prices continue to fall, it likely that that OPEC either formally or informally will reduce production by whatever amount is necessary to keep prices closer to $100 a barrel.

The average US gasoline price is now nearly 60 cents a gallon cheaper than in July, thereby reducing the incentive to cut back on driving. Gasoline shortages across the Southeast caused by the September hurricanes are easing so consumption in the affected areas should be returning closer to normal soon.

For the next few weeks the state of credit markets and the direction of the economy are likely to overshadow any fundamental news about oil production and consumption. The immediate concern will be the availability of credit and whether or not the $700 billion actually will help the situation.