Oil prices dipped below $60 a barrel to 20-month lows yesterday, before rebounding sharply on confirmation that Saudi Arabia will cut production and as global stock markets rose on better-than-expected company results.
Yesterday's grim news on prospects for the US economy had pushed Brent crude for December settlement down as much as 3.5 per cent to $58.38, the lowest since February last year. However, indications that the world's leading oil exporter, Saudi Arabia, has already cut crude supplies to some customers saw a rebound and it closed at $66.44, a rise on the day of $5.96. There had been doubts that Saudi would support the recent Opec deal to suppress production.
One industry source told Reuters that they estimated Saudi Arabia had reduced exports by 900,000 barrels per day compared with the peak in August. Opec agreed at an emergency meeting last month to lower its output ceiling by 1.5 million barrels per day, or roughly 5 per cent. Member states Nigeria, Iran, Kuwait and the United Arab Emirates have already cut shipments. Russia, although not in Opec, has signalled its support for the cartel's policy.
Yet even as such rumours about lower oil production reverberated around the Gulf, the Prime Minister told an audience in Dubai that the world had to move beyond the "zero sum gain" approach where oil consumers and producers were regarded as in opposition, and begin an unprecedented dialogue: "Clearly we need a new way forward for our energy policy that does not assume it is a question of oil and commodity producers versus consumers. That approach has left producers unable to plan or invest; consumers subject to volatile prices; and our planet damaged by the absence of a stable path to a low carbon emissions future. And it also misses out a crucial element of the energy equation: the world will need more oil and gas in the years to come."
Mr Brown is seeking new funding for the IMF from the Gulf states, their treasuries bloated with the windfall gains from the huge increase in oil prices in recent years. In return, Mr Brown has promised them a bigger say at the IMF.
Over the past decade, the price of a barrel of crude has risen from $10 to a peak of almost $150 in July. Most analysts expect the price of oil to stabilise around the $100 mark next year, though Credit Suisse cut its 2009 price forecast to $58 a barrel from $73 on prospects of weak demand in China. Others may follow, and many believe that the market will test the $55 barrier by the end of this year.
Lower oil prices will be crucial in allowing the advanced economies to reduce inflation, and thus cut interest rates to stimulate their stumbling economies. Lower oil prices will also mean a less severe squeeze on living standards in the West next year.Reuse content