Oil's Drop Squeezes Producers - Economies of Iran, Venezuela Vulnerable as Crude Price Falls but Demand Stays Low
By NEIL KING JR. and SPENCER SWARTZ
Dated: 10.09.2008
Big oil-producing countries are showing signs of distress as the global credit crunch and falling crude prices begin to squeeze government budgets and delay projects.
Fears that the boom days are fading appear strongest in Iran and Venezuela, whose governments have come to rely on oil prices to prop up otherwise shaky economies. Both countries this week led a chorus within the Organization of Petroleum Exporting Countries calling for an emergency meeting of the cartel, now set for Nov. 18, to weigh a production cut.
The global economic crisis is eating into oil demand, particularly in the U.S. and Europe, and helping drive down crude prices. Some forecasters said that despite a strong thirst for oil in Asia and the Middle East, global oil consumption could flatten out next year, potentially ending nearly a decade of steady demand growth.
In early afternoon trading, benchmark crude for November delivery fell $1.59, or 1.8%, to $87.36, on the New York Mercantile Exchange. Crude has plunged around $60 a barrel from its July high, and analysts said signs of a deep recession among industrialized countries could move prices down further.
Oil exporters have racked up cash surpluses as prices soared to historic highs. Saudi Arabia, the world's largest exporter, is expected to record $138 billion this year, up from $95 billion last year.
But government spending also has soared within OPEC and among other big producers such as Russia, based in part on the expectation that oil prices would remain high.
Standard & Poor's said last week that Venezuela's budget balance "could deteriorate quickly" if crude prices fall sharply. The nationalization of a number of industrial companies is expected to cost the government around $6 billion, or about 2% of gross domestic product, in 2008, according to Standard & Poor's.
PFC Energy, a Washington consultancy, estimates that Venezuela needs an oil price of nearly $95 a barrel to assure macroeconomic stability, three times what they needed in 2000. By contrast, Saudi Arabia requires an oil price of $55 a barrel, more than double from eight years ago, according to PFC estimates.
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