Thursday, November 20, 2008

As oil falls below $50 a barrel, greedy OPEC tries to create a scarcity

The price of oil, which skyrocketed to bring down the economic house of cards, is now headed south. For the Middle East, this is of great significance. Economies of oil rich Arab states geared their budgets and spending to $100 a barrel prices. Most will fall into deficit if the price remains at $50. Iran is at a deficit since the price fell below $90. OPEC attempts to limit production in order to pay for bare necessities like artificial islands and ski parks in the desert will fail. Nobody has the money for expensive oil.
November 21, 2008

Oil Falls Below $50, Lowest Price Since January 2007

LONDON — Oil plunged below $50 a barrel on Thursday, deepening losses over the previous four sessions as battered financial markets reflected ever lower confidence in the world economy and evidence mounted of falling fuel demand.

Crude oil in New York trading fell $3.71, to $49.91 a barrel, the weakest level since January 2007.

As economic slowdown has destroyed fuel demand, oil companies plan to store millions of barrels of oil in the hope economics will improve.

Oil has lost about two-thirds of its value since July's record above $147, in part because a global credit crunch has made investors pull their money out of riskier assets.

The falls on oil have mirrored weakness on equity markets, which dropped again on Thursday when European stocks hit their lowest level since March 2003.

"Weakness in stocks reflects weakness in the economy at the moment looking forward, but I think the general trend in oil is lower anyway," Sucden's head of research Michael Davies said. "It's a bit of a chicken or egg thing. Everything's moving together, it's hard to say what's leading."

Oil differs from other commodity markets in that producer group the Organization of the Petroleum exporting Countries can intervene to curb supplies, in theory providing support for prices.

Since early September, OPEC has said it will remove around 2 million barrels per day from international markets, but the market has taken the view falling demand is a bigger factor than tightening supply.

Deutsche Bank said on Wednesday oil could fall to as low as $40 a barrel next year.


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