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After falling more than $100 from its peak in July, the price of one barrel of crude oil reached a low of $34 on December 19, 2008. The drop was caused by reduced demand around the world, particularly in the United States where consumers have been recoiling from the economic crisis.
On December 17, 2008, OPEC responded by announcing a dramatic cut in production, reducing total output by 2.2 million barrels per day. Overall, the organization has cut production by 4.2 million barrels per day in the last four months; the largest cutback in history. Though the reduction isn't scheduled to take effect until January 2009, commodity markets reflected a drop in oil prices in reaction to the announcement. A combination of weakening world markets, decrease in demand, and skepticism as to whether OPEC members will comply with the reductions are all though to have contributed to the price drop.
Some analysts have compared the current situation to the oil market in 1998, during which the price of oil dropped below $10 per barrel. The collapse has been devastating to oil producers who have forecast their budgets based on estimates of $50 per barrel oil or more.
How the decrease in output will alter the price of oil is still unknown. Hopefully, even with further drops in crude value, the high prices of last summer will continue to act as a warning that a more sustainable alternative is necessary.
Find out more about the latest environmental news on Focus Earth: December 20, 2008: Saving the Condor & OPEC Cuts.
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