I’ve talked a lot about oil inventories these past few weeks, and with good reason. With refineries worried about deal-breaking issues like tight credit, lousy consumer demand, and a declining oil market, oil refineries are reducing output and taking a nervous, “wait-and-see” attitude about the economy.

The numbers back that up. In a recent industry study, 57 % of chief financial officers at U.S. oil and gas exploration and production companies say that "credit capacity restraints, including access to capital" will be their greatest financial challenge in 2009.

Another 21% think falling oil or natural gas prices will be the biggest challenge they’ll face in 2009, and a whopping 72% expect the economic crisis in the U.S. to impact their ability to borrow money or extend bank debt in 2009.

This could put an alarming number of refineries in trouble, as the economy probably won’t get much better until 2010. Cash-poor refineries may be ripe for takeover by stronger, leaner energy companies that are planning for the good times which will inevitably come again.

It’s not just refineries. The economic landscape has treated other key sectors harshly as well. Oil field services and machinery companies that support drilling activity are hurting, too, as they deal with a sustained lack of demand for oil and natural gas. Both commodities had been in oversupply in the U.S., so it only makes financial – if not survival -- sense for oil companies to sit back and wait for inventories to decrease before they get aggressive about going after more product. Right now, we’re seeing capital spending cuts for refineries somewhere in the 20% to 25% range. But if the oil market doesn’t pick up by summer, you can expect to see companies cut spending deeper, perhaps to as much as 40%. If that occurs, the domino effect will be felt across the energy markets.

But again, it all comes back to inventories. We’re seeing some upward price movement after the Energy Information Administration reported an unanticipated decline in crude oil inventories – something I talked about earlier in February.

It’s a welcome, if entirely understandable, turn of events. Less oil means higher prices. Overall, EIA data revealed U.S. commercial crude oil inventories decreased 138,000 barrels in the week ended Feb. 13. Energy analysts had expected an increase of about three million barrels.

The American Automobile Association says that lower inventories may be having short-term impact on oil prices, helping trigger a rise in per barrel prices from $34 to $39 a barrel by the end of last week.

But what about cuts in oil production by refineries? In my book, that’s having a bigger impact than any slight downward pressure on inventories. AAA reports that refineries just aren’t making a lot of gasoline, and are limiting their use of oil. 

"Refineries have taken a look at what the economy is doing and where consumers are spending, and they have responded in tune by cutting the amount of product that they make," confirms Michael Geeser, a spokesperson for AAA. "So that, in turn, has driven up this recent increase in gas prices."

That scenario won’t likely change soon, especially as the economy continues to spiral downward in early 2009. Yes, I expect that demand will rise for the high-volume summer holiday travel season, but not by as much as we’ve seen historically. And certainly not in time to save any refineries that don’t have the financial stability to wait out a historically negative economic environment.