Oil sees sub-50, still seeking bottom

Continuing its falling spree, oil briefly fell below $50 per barrel this Thursday before recovering slightly on Friday. Crude oil has shed about 18% in 12 sessions of 2007 and the sub-50 level has been seen for the first time in 20 months.

Weeks of mild winter weather in the U.S. Northeast, a key consumer of heating fuels, and growing energy stockpiles amidst doubts on OPEC’s ability to effect production cuts have been driving the recent fall. OPEC has committed itself to a total cut in output of 1.7 million barrels per day, including a 500,000 barrel-a-day reduction set to begin February. But the oil cartel is believed to have cut output by little more than half of its pledged levels. Production remains near 27 million barrels a day or about 700,000 barrels a day above OPEC's target.

OPEC member Saudi Arabia, which is also the world's biggest oil exporter, has been vocal about not making further production cuts and has instead said it plans to increase its crude oil production capacity nearly 40 percent by 2009 and double its refining ability during the next five years to keep pace with growing global demand.

Although crude oil for February delivery at NYMEX managed to close above $50 per barrel, it's expected to keep its date with sub-50 level. It should trade in a $40-50 band in the near future - a level where most of the consumers, notably developing economies like India, will be comfortable.