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Although not yet widely appreciated, a key underpinning for economic recovery will be the size and effectiveness of investment in oil production projects. Without substantial investment, world oil production is certain to continue falling of its own accord after the current round of OPEC and other production cuts. 

Reports of delayed or cancelled projects continue to come in. During the past week there have been reports of refinery projects being placed on hold and additional cancellations of production projects. France’s Petroleum Institute, which tracks petroleum exploration and production, is forecasting that investment is likely to stabilize during the first few months of 2009, but after that it is impossible to forecast.

A few large organizations, most notably Brazil’s Petrobras-which hopes to become a major oil exporter in the next few years-maintain that the current economic slowdown will have no effect on investment plans.  While projects by self-financed companies continue, smaller organizations that depend on banks say funding has dried up.

A recent re-evaluation of the balance between oil coming into production from new projects vs. depletion from currently producing fields continues to suggest that in 2010 depletion will start to get ahead of production. Six months ago, with nearly all oil producers making a maximum effort to produce as much oil as possible, such a finding was at the heart of understanding future oil production. Now with both demand and investment falling rapidly, the situation has become so complicated that it is difficult to determine what will be the limiting factor on future oil production.