First it was Hurricane Gustav that had CNN and other television correspondents scrambling down to the Gulf of Mexico. Then, Hurricane Ike ploughed through the Caribbean, leaving 170 Cubans and Haitians dead and causing severe damage on its way to the Texas coast.

Hurricane watchers know that storms are named in alphabetical order, building drama and suspense as they gather momentum along their path. Usually when hurricanes hit they send shivers through energy markets with fears of supply disruptions and damage to refining facilities.

In that context, this hurricane season has been a bit of a yawn, not because the storms lack force, but due to another storm which hit markets well before hurricane season began. Let’s call it Hurricane Ali, named after the veteran Saudi Arabian oil minister Ali al-Naimi. He showed up on the weather radar at the end of June by increasing oil production by a half million barrels a day, using a gathering of oil producers and consumers in Jeddah to underline his point. While it took the markets nearly a month to feel his effects, Hurricane Ali was responsible in large part for a 30 percent drop in oil prices in the last two months.

Perfect Storm

Hurricane Ali was timed -- either with great calculation or great luck -- to coincide with two other forces in the market: an acute economic slowdown and sharp criticism of oil futures speculators. After seeing a peak of $147 a barrel, today setting a floor of $100 is proving difficult. Saudi counterparts within OPEC, Iran and Venezuela have argued for greater discipline within the cartel as well as adherence to a daily production quota of 28.8 million barrels a day.

OPEC’s communiqué from Vienna this week pointed to an oversupply in the market and noted that members should “strictly comply” with their production allocations. I would not bet on it, despite the group’s efforts. Calculating production and demand is not a simple equation when every day, new figures forecast falling growth.

We already know that consumers in the U.S. and Europe are driving less as a result of higher petrol prices. The airline industry, according to sector’s trade association IATA, will lose up to $5 billion due to higher fuel costs and fewer passengers in the air.

Both these trends are reflected in macro-economic figures as well. The European Commission has dialled back growth projections for this year to only 1.3 percent and is pointing to a “significant downward revision” next year. The Paris-based International Energy Agency once again lowered oil demand forecasts for this year and the next, and I doubt that will be the last of it as the global slowdown plays itself out.

Meanwhile, a report from hedge fund manager Michael Masters does its own share of finger pointing at commodity speculators for the upsurge and subsequent fall. Masters contends that $70 oil would be a more realistic level if fund managers would refrain from buying a basket of commodities through index trades. The U.S. Congress is still contemplating a whole series of measures aimed at curbing speculators.

Goldilocks Scenario

John Lipsky, first deputy managing director of the International Monetary Fund and a respected former Wall Street economist, is projecting that global growth will recover to 4 percent next year after a dip to 3 percent in 2008. The recovery will be driven in large part by players like China and India who are still seeing expansions of 7-10 percent.

That level of recovery would play well in the Middle East, with producers still seeing their coffers overflowing from three digit oil. OPEC members this week quarrelled over the best way to defend $100. The answer may be as simple as the Goldilocks fairy tale -- with production that is not too hot, not too cold, but just right.