Archive for December, 2008

On Wednesday of this past week, OPEC agreed to slash production of crude by 2.2 million barrels a day in a desperate attempt to find a floor. Its action had little effect as prices tumbled to under $34 on Friday, reflecting declining demand and rising inventories. Current market conditions did not preclude the United Arab Emirates from awarding Raytheon a $3.3 billion contract on Thursday to provide advanced Patriot air and missile defense capability. Indeed, the current price of crude may have accelerated the purchase since Gulf governments could soon move to aggressively cut spending in direct response to the crisis.

Desperate for an upside in a downside economy, U.S. consumers have found solace in plunging oil prices, which some analysts believe may dip below $25.00 per barrel in the coming year. Crude’s freefall, resulting from a commensurate reduction in global demand, is a direct reflection of shattered markets, shuttered plants and surging unemployment. In the greater Middle East, where the jobless rate averages a reported 15 percent, declining oil revenues among the wealthier Gulf nations wil likely affect development throughout the region, creating conditions that are politically and socially unstable. When OPEC members meet next week to determine output reduction, the severity of the cut may be more than a matter of money, but security.