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By recent standards, oil prices had a pretty good week. After dropping a couple of dollars to a low of $38 a barrel, prices rebounded 6 percent on Wednesday after the weekly oil stocks report showed an unexpectedly large drop in gasoline stocks. On Thursday prices rose above $45 a barrel on hopes that the drop in US demand may be stabilizing. US crude inventories, which have risen by 30 million barrels in the recent weeks, were up by a less-than-expected 700,000. On Friday, worries about the recession moved to the fore as Japan reported a large drop in exports and the US’s GDP was revised for the 4th Quarter of 2008 to show an unexpectedly large 6.2 percent decline.

The race between OPEC production cuts and a faltering global economy continued last week. A second tanker tracker reports that OPEC is making good progress on cutting production by 4.2 million b/d. Both trackers say that OPEC has already accomplished about 80 percent of their goal. With OPEC still receiving $40 or less for its oil, many analysts are predicting that OPEC will make another 1 million b/d cut at the March 15th meeting. The oft repeated sentiment is that oil prices will never rise as long as the global economy contracts.

As the Saudis are likely to bear the brunt of an additional production cut, talk continues as to how much further the Kingdom can cut production without endangering the vital natural gas supply which is needed to keep the country functioning.

The EIA reported this week that US petroleum demand in 2008 fell by 6 percent or 1.2 million b/d to 19.4 million b/d. For December consumption was down to 19.1 million b/d or a drop of 7.4 percent from 2007. Preliminary numbers from January and February 2009 suggest that demand has rebounded a little but is still well below the same months in 2006 and 2007.

The key issue remains whether global demand has fallen as much as the 3.4 million b/d that OPEC appears to have cut its production. If this is the case then global stocks should start falling soon.