OPEC: US $700B Bailout Expected to Boost Crude Demand

TEHRAN (Dow Jones Newswires), September 29, 2008

Iran's Organization of Petroleum Exporting Countries governor Monday said a $700 billion U.S. bailout of the financial sector is expected to affect crude oil demand "positively."

"If they are going to inject $700 billion in the U.S. financial sector then it will be a factor in increasing demand. Then the demand performance could be better than expected," Mohammad Ali Khatibi told Dow Jones Newswires in a telephone interview.

Khatibi also welcomed the recent recovery of crude oil prices, saying that it will have a positive impact on international investments in the oil sector.

"The good news is the downward trend of oil prices was stopped," he said.

"This is good news because if the downward trend had been continued, then it would be bad news for investors because investors hesitate to invest more (at lower oil prices), and we need more investment," Khatibi said.

Oil prices have fallen drastically in the past two months, dropping almost $50 by Sept. 16 from a high of above $147 a barrel in July before recovering to levels above the $100 a barrel mark.

On the New York Mercantile Exchange, light sweet crude futures for November delivery were trading $5.02 lower at $101.87 a barrel at 1236 GMT Monday. The latest drop in oil prices has raised some concerns in Iran, which needs prices above $90 a barrel to avoid a fiscal deficit, International Monetary Fund director of Middle East and central Asia, Mohsin Khan, told Dow Jones Newswires on Sept. 21.

Windfall oil revenues in the past four years have allowed Iran to raise investments in its oil and gas sectors at a time when sanctions imposed over the country's controversial nuclear program have crippled its ability to tap global financial markets for funding.

The National Iranian Oil Co. plans to spend some $16 billion on oil and gas projects this year, up from an average $12 billion a year for each sector in the past three years, according to figures provided by the Iranian Oil Ministry's department of planning.

Khatibi said strong demand in the fourth quarter when the Western hemisphere enters winter season and renewed economic growth in Europe and Asia could drive an increase in oil prices.

"If the winter demand will be strong (and there is a) very cold winter and also a successful economic plan in industrial countries, it will affect positively the demand side from the OECD and also from Asia," Khatibi said, adding that this scenario would require "more oil" supplies.  

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