A $40 Bottom in Oil?

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Why? $40 a barrel is the level that many Middle Eastern OPEC nations need to achieve to continue to fund their somewhat lavish public works and social programs, the exec estimated. Dubai, Abu Dhabi, Saudi Arabia and Kuwait arenít cheap countries to run.

Oil prices are wallowing in the $65 a barrel territory these days, less than half the level crude hit this summer. It even dipped below $60 briefly. But the real number to think about is $40 a barrel, a former oil exec turned investor told me.

Why? $40 a barrel is the level that many Middle Eastern OPEC nations need to achieve to continue to fund their somewhat lavish public works and social programs, the exec estimated. Dubai, Abu Dhabi, Saudi Arabia and Kuwait arenít cheap countries to run. The economic explosion in the past few years has caused a building boom in Dubai, which in turn has meant more public works projects. Some of the newest, smoothest pavement in the world can be found there...

OPEC nations probably arenít too terrified of oil skirting the $40 a barrel level just yet. The current drop in prices has largely been caused by a decline in demand due to economic conditions and the bursting of the speculative bubble in commodities. It did not result from new oil strikes outside of OPEC or the sudden availability of cheap ethanol or electric cars. An economic turnaround, combined with a further dwindling of existing supplies, could perk prices back up.

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