When the Wall Street Journal runs a story entitled “Oil Prices Could Go Either Way,” you can be sure there is confusion in the land. In preparing the story, the Journal’s reporter called the usual array of Wall Street energy gurus and got sharply mixed responses. Some thought oil prices were about to follow the typical seasonal pattern and drop – perhaps as low as $50 a barrel. Some thought there was at least $10 worth of hedge fund speculation in the $80+ prices. Others, perhaps more attentive to what the government agencies have been forecasting for the coming winter, talked about $90 or $100 oil before spring. What’s a poor reporter to do but write an “either way” story?

In the past few months, the direction the demand for oil will take has become more complicated with the subprime mortgage crisis morphing into a liquidity crisis which some believe will lead into a recession. To a large extent, one’s view of the prospects for oil prices now hinges on whether one believes a recession is coming or that cutting interest rates will be enough to keep the good times rolling a while longer.

The corollary to all this is that as interest rates fall, so too does the dollar which is already leading to all sorts of consequences both good and bad.

So what does peak oil have to say about all this? While usually looking at the supply side of the equation, many following peak oil are starting to worry that a major recession could reduce demand so much that the fact of global oil depletion will get lost in the clutter and that efforts to mitigate falling oil production will be put off until it is too late.

Those of us who are reading the fine print in U.S. government and OECD projections for the oil markets have noted a change in tone in recent months. Earlier this week, the U.S.’s Energy Information Administration released its Short-Term Energy Outlook for October. Keep in mind that one of the EIA’s unstated “prime directives” is not to scare the pants off Wall Street with loose talk of oil shortages. If one reads between the lines however, the report paints a rather pessimistic outlook for the year ahead.

The report notes that “The current world oil market is characterized by rising consumption, moderate non-OPEC supply growth, falling inventories, and rising demand for OPEC oil.” This is followed with some happy talk about how reduced U.S. demand over the next two months suggests that oil prices might ease slightly. Then we get to the real conclusion – “if consumption growth continues at recent levels, as expected, tight global oil market conditions will likely persist through 2008.”

The EIA and IEA still see world oil consumption increasing next year – by 1.4 million barrels a day according the this week’s EIA estimate. No serious recession in sight. To cover this increased demand without a major spike in prices the IEA officially is projecting an increase in non-OPEC production of 860,000 barrels a day and OPEC production of 1.2 million barrels a day.

If this should happen it will be a real breakthrough in world oil production which has been flat for the last two years. The contrast between “tight market conditions” and a two million barrels a day possible increase in production suggests that the EIA is becoming schizophrenic in its attempt to adhere to the “unwritten prime directive” and “telling it like it is” at the same time.

Meanwhile, over at Goldman Sachs, Wall Street’s premier oil pessimists, they are still calling for much higher prices this winter. They are skeptical that we are going to see another 2 million barrels a day of exports next year to meet constantly increasing demand in Asia. (By the way, Chinese oil imports are up by 18 percent so far this year.) Goldman’s is now talking about “peak exports” by pointing out that exports from the Middle East are lower today than in 2000 even though production is up by 2 million barrels a day. They are keeping the oil at home, folks.

So there we have it. Wall Street is confused. Business executives are confused. The government is confused. This could well be the sign that big changes are in store. The only certainty in all this is that over the next 12 months we will consume another 31 billion barrels of oil . . . and then another 31 billion . . . and another . . . and another.