Good news on the economic front - - Oil price drop screwing oil producing nations

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Good news on the economic front - - Oil price drop screwing oil producing nations

OPEC is in crisis mode with the dramatic drop in the price of oil. Many of the oil producing countries require a much higher oil price to continue running their economies. What threats of war may not achieve, economics will overcome.

Since the group's last meeting a month ago, OPEC's reference basket price — an average of oil grades sold by producers of the cartel, including Saudi Arab Light and Sahara Blend from Algeria — has fallen by more than half, reaching a low of $42 a barrel last week.

The drop in prices is threatening the economic and political foundations of many oil producers. Iran's populist president, Mahmoud Ahmadinejad, is expected to run for re-election next year while Hugo Chávez of Venezuela is being contested in local elections at home. Both countries need oil above $90 a barrel to balance their budgets, according to various estimates.

"The Iranians, the Russians and the Venezuelans, who had benefited the most from the rise in price, are the ones paying dearly now with the collapse," said Lawrence Goldstein, a veteran energy analyst.


But while different producers have competing agendas, the drop in prices has been so rapid that even moderates are feeling the sting.

"Prices have gotten to a point that they are hurting everybody now," Goldstein said. "A world of $50 oil or less is in no one's interest within the organization."

This weekend's meeting may include proposals to open consultations with producers outside of the cartel, the Iranian envoy has indicated, and could set the contours for a coordinated response between OPEC and non-OPEC producers like Mexico and Russia. In the late 1990s, Norway and Mexico trimmed their production to bolster oil prices after the Asian economic crisis.

The Russian energy minister, Sergei Shmatko, on Tuesday suggested that his country might reduce its output in tandem with OPEC. He said that Russia required $95 a barrel next year, otherwise its budget would be strained and its currency would suffer.

But with its production already declining this year because of a lack of investments, it is unlikely that Russia will follow through, analysts said.

 http://www.iht.com/articles...
By netchicken: posted on 28-11-2008








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