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Prices started the week around $45 a barrel; dropped to $40 on grim economic news and a 4 percent drop in the Dow to a 12-year low; and then rebounded to close to $45 on the premature hope that China would announce a major new stimulus package.

Mixed signals continue to emerge from the run-up to next week’s OPEC meeting. With outside observers reporting that OPEC appears on track to reduce its production in the vicinity of 4 million b/d by the end of March, the issue becomes the amount of contraction in world demand. The IMF is now saying that the global economic downturn will be considerably deeper than forecast even last month. US crude inventories fell unexpectedly in last week’s stocks report leading some to speculate that the OPEC production cuts may be having an effect.

There is some discussion that the Saudis are realistic enough to recognize that with the global economy in free fall, it will be very difficult to increase prices to the $60-$70 level and that OPEC should be content with $50 a barrel especially if the US dollar continues to fall. This policy is unlikely to satisfy other OPEC members who are in far more difficult straits than the Gulf Arab states. Iran’s oil minister is now favoring an undefined “mechanism to repair prices” rather than cutting production, while Venezuela says it will ask for another cut.

Another school of analysis says that recent Saudi price increases are a signal that there will be another big production cut. Given that oil prices have yet to increase significantly, most observers are predicting a fourth cut.

US natural gas prices closed out the week at a six-year low as the large increase in unemployment reported on Friday suggested further reductions in demand for gas.

On Friday, the IEA and OPEC will publish a revised monthly estimate of global oil demand for 2009. Most observers are expecting forecasted demand to drop by at least another 1 million b/d.