Oil below $40 per barrel?

Deutsche Bank AG has said that Oil prices may fall as low as $40 a barrel by April as demand collapses and production costs eases. In a report published on Bloomberg, Deutsche have said:
“Cash production cost ‘floors’ for the oil price are a shrinking target because of lower costs and a stronger U.S. dollar…This implies a `V' shaped downside to $40 a barrel crude around April 2009.”

Oil has dropped 63 percent from a record $147.27 in July. As on yesterday, crude futures hovered around $54 a barrel mark. In a separate item reported in the Financial Times, top executives from national oil company of China have predicted about $40 a barrel, thereby putting quiet a few new oil-exploration projects at risk of cancellation.

Oil that cheap is a major concern for big oil-producing countries like Iran, Iraq, and Venezuela. Any cut in production by OPEC, the cartel of oil exporting countries, is not likely to be as effectual as it was once thought to be. OPEC’s previous announcement of output reduction of 1.5m barrels a day failed to revive the falling crude oil price. The group's biggest producer, Saudi Arabia, will “move cautiously” amid the increase in the supply of non-conventional oils such as ethanol in the U.S.

However, this development has another implication. Cheaper oil could also take out some steam out of the push for clean energy in the US – which is much costlier.