Oil prices plunge towards $40

World oil prices hit a four-year low with analysts predicting they could drop as low as $25 a barrel next year as demand falls.

World oil prices hit a four-year low near $40 a barrel today and analysts predicted they could go as low as $25 next year as demand falls. The plunge in prices from a high of $147 in July has already caused alarm in the Gulf, which supplies almost half of the world's oil exports, and Opec has cut production twice to remove a growing surplus on world markets. "The global outlook is deteriorating rapidly," said Michael Lewis, the head of commodities research at Deutsche Bank in London. "The attention is now on Opec and they have quite a good record on defending the price. They have a 75-80 per cent success rate but the times they have failed have been when global growth is under attack." Mr Lewis said it could take Opec more than a year to stabilise the market. Chakib Khelil, the Opec president, said the organisation would make another substantial cut in production this month if prices stayed below $60. "If prices go above $60, it is possible that the reduction will be less important," Mr Khelil, also Algeria's energy and mines minister, said overnight on Algerian television. Saudi Arabia, the world's largest oil exporter and linchpin of Opec, has said $75 a barrel is a "fair price". Most Gulf governments need oil prices of about $50 a barrel to balance their budgets, but Iran and Iraq need a much higher price. US crude oil futures for January delivery stood at $44.16 a barrel yesterday. Merrill Lynch, the American bank, has predicted prices could dip as low as $25 next year if the recession affecting the US, Europe and Japan extends to China. Its average oil price forecast for 2009 is $50. [e-mail] For a full report read The National on Saturday.