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The oil price continues to drift downwards and has now broken through the psychologically important $50-a-barrel price level. This is in part because of the bleak economic outlook for the US, the major consumer of the commodity.
It may be a while before the price returns to a level more comfortable for oil producing countries - something like $75 a barrel, suggested by Saudi Arabia. Even though the Organisation of Petroleum Exporting Countries (Opec) is likely to decide on production cuts at its meeting later this month, demand for oil is going to remain weak as long as the major economies continue to battle recession. Some studies suggest it could take as long as 18 months before the international economy stabilises and significant, global growth returns. Cutting the supply of oil may help bolster weak prices, but it is increased demand that will take them back to the $75-a-barrel level.
Many oil producing countries were conservative in their estimates of price - and revenue - when they drew up their national budgets. But with the prospect of more persistent low oil prices, it is perhaps time for a keen review of economic plans, so that decisions can be made about non-essential projects and, where necessary, new ones to help them ride-out the global financial crisis.
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