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The future of oil prices February 4, 2009

Posted by mytruthaboutoil in Geostrategy, Oil (general), Oil prices.
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Asia as the new Graal? Still not sure? Visit the India Times for this very interesting article:

(D. H. Pai Panandiker is the President of RPG Foundation. The views expressed in this column are his own) 

By D. H. Pai Panandiker 

When the price of oil had touched $145 a barrel last July the oil exporting countries were understandably amused. The price had jumped 72 per cent in 6 months. Subsequently, when prices dropped, the oil exporting countries were understandably uncomfortable.Prices had fallen 75 per cent in less than six months.

 The OPEC members are jittery. Oil revenue is their mainstay and the fall in oil prices had pushed many of their budgets into deficits. It was therefore expected that OPEC would intervene and it did so with all seriousness. OPEC does not regulate prices; it decides production quotas for each member. Often, when prices are low it becomes difficult to ensure that cartel members keep to their quota commitment.

 But the OPEC members, after the bitter experience of 1998, maintained excellent discipline under the leadership of Saudi Arabia, the largest oil producer in the OPEC.

 The first modest 500,000 barrels per day cut in production came in September. Within a month prices collapsed further and the OPEC became more aggressive with 1.5 million barrels a day (mbd) cut. The fall in prices however continued and the OPEC in December decided on a further cut of 2.2 mbd. That takes the total cuts in production to 4.2 mbd or about 5 per cent.

 The lowest price at which oil was sold in December was $32 a barrel. The sharp cut announced at that time pulled up the price to over $40. Prices now appear to have stabilized in the range $35-45 a barrel.   (read full story at: http://in.reuters.com/article/economicNews/idINIndia-37829420090204

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