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OPEC can live with $50 oil for 2009

April 06, 2009
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OPEC may be able to live with oil prices around $50 a barrel in 2009, its Secretary General said recently, just another sign the group has limited its price aspirations for now because of the weak economy, according to Reuters. The comments are the first indication from the Organization of the Petroleum Exporting Countries of how long it can withstand oil at $50, below the $70-$75 many in OPEC and the oil industry say is needed to encourage investment in new supply. While painful for producers, cheaper oil equates to a large economic stimulus for consumers and oil producers stand to benefit in that a stronger economy encourages demand for fuel, which is forecast to decline this year. When it met in March, OPEC decided against a new output reduction to bolster prices, saying it was waiting to see the outcome of a G20 summit, which took place in London on last week. World leaders agreed to $1.1 trillion in financing to strengthen the world economy and toughened up the regulations on banks, hedge funds and tax haven at their summit. Prices have recovered from a low last year of $32.40 after OPEC agreed since September last year to reduce oil output by 4.2 million barrels per day, about 5 percent of daily world demand, to support prices. So far, it has met that commitment by just under 80 percent. The 12-member group next meets at the end of May to reassess the balance of supply and demand. OPEC has repeatedly warned the drop in prices will hurt investment, threatening shortages and forcing up prices just when the economy and demand might be recovering. At Thursday''s Paris conference, Total CEO Christophe de Margerie said many oil companies were delaying big projects to preserve cash and his company might not meet its plan to invest $18 billion this year. Other international oil companies, such as Exxon Mobil Corp., have said they would not cut back on investments in new crude production despite the price plunge.
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