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Russia’s Texas Tea Party Cools

at 14/11/2008 00:28

Oil prices fell to an 18 month low of under $56 a barrel on Wednesday, as painful data from retailers and a dismal outlook from automakers lent more evidence to the prediction that the world will slash its energy usage.

Following a 5 percent decrease on Tuesday, light sweet crude for December delivery fell nearly 6 percent Wednesday, or $3.50, to settle at $56.16 a barrel on the New York Mercantile Exchange, the lowest closing price since January 2007. Oil prices have plunged more than 60 percent in four months from record highs near $150 in July.

Oil prices fell ahead of a report from the International Energy Agency (IEA), which cut its oil demand forecast by 670,000 barrels a day for 2009. Prices continued to decline after the report was published on Thursday, falling close to $55.

The IEA announced on Wednesday that more than a trillion dollars in annual investment to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy.

Stocks and oil prices jumped Monday following China's announcement that it would spend $586 billion dollars to spur growth. By Tuesday this optimism had waned, with fears that the US economy could go into a prolonged recession, causing stock markets around the world to tumble.

Oil prices fell despite signs that OPEC members are going ahead with production cuts agreed to at an emergency meeting in Vienna, Austria, last month.

Many analysts are expecting another cut by the Organization of Petroleum Exporting Countries, which will meet on Dec. 17 in Oran, Algeria.

The prime minister of Qatar said Tuesday that "fair" oil prices of between $70 and $90 per barrel would ensure that expensive oil exploration could continue, avoiding price spikes in the future.

Sheikh Hamad Bin Jassim Bin Jabr Al-Thani said that while oil prices below $70 a barrel may seem like a gift to consumers, it could trigger price spikes in the near future when demand picks up.

Despite falling demand, rather than OPEC's supply, determining world crude prices, the IEA has doubled its forecast price for oil over the next 20 years. It now predicts oil prices in real terms will be $120 a barrel in 2030, up from last year's forecast of $62.

Russia's budget for this year was balanced on assumptions of oil prices at $70 a barrel, and next year's is budgeted for $95 a barrel. Officials have repeatedly said, however, that the 2009 budget will be safe even if oil averages $60.

On Monday, Prime Minister Vladimir Putin advocated a greater role for Russia in determining world oil prices after meeting with the heads of Russia's top oil companies to discuss crude export duty cuts.

"As a major exporter and producer of crude and oil products, Russia cannot remain on the sidelines with regard to the formulation of world pricing for crude, and we must develop an entire range of measures that would allow us to actively influence the market situation," Putin said.

Finance Minister Alexei Kudrin also announced that the government was considering tapping into the Federal Reserve Fund, which totals $130 million, to make up for lost oil revenues. 

Combined Report AP, RIA Novosti, MN

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