Tech & Biz

OPEC Ponders Price Drop as Oil Usage Declines

by Jordan Yerman | October 22, 2008 at 08:43 am

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OPEC is divided on its pricing and supply strategy, with some nations favoring a decrease in output and a rise in prices, while others want the opposite. While they try to present a unified front, countries that make up the Organization of Petroleum Exporting Countries have different relationships with outside nations vis a vis their flagship product: crude oil. Overall, OPEC wants to arrest the oil price drop to compensate for declining oil usage worldwide, but propping up these prices may prove difficult if demand remains slack for too long.

Oil futures speculations shows a probability that crude oil will trade below $50 per barrel by June 2009. This is due to projections of reduced demand as economic growth slows around the world, particularly in developing nations.

(More Gas Prices coverage here)

The debate in the Organization of Petroleum Exporting Countries pits Saudi Arabia, the group's biggest producer and a U.S. ally, against Venezuela and Iran, two nations that oppose U.S. foreign policy and advocate higher oil costs. Crude has plunged 53 percent from its July 11 record of $147.27 on the New York Mercantile Exchange. It traded at $69.37 today.

Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.

Saudi Arabia needs oil prices of less than $30 a barrel to balance its government budget, according to Merrill Lynch & Co. estimates. The United Arab Emirates requires $40 a barrel and Qatar $55.

Oil demand may not just slacken further, but fall for the first time in fifteen years.

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