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All eyes will be focused on the OPEC meeting that takes place in Vienna this Friday. With prices falling another $10 last week, some form of cut seems inevitable. At an average of $68 a barrel for OPEC crude prices are now below the level required to permit Venezuela and Nigeria to continue spending at current rates and are getting within $10-15 of what the Saudis, Iran and the UAE need. Caracas of course wants the Saudis and the smaller Gulf States to absorb whatever cuts are necessary to force oil back to $90-100 leaving the more populous states – Iran, Nigeria, and Venezuela – with the income to support current programs.

The financial world, however, has changed markedly. With a global recession looming and an all-to-real credit crisis threatening economic activity, it just might not be possible for the OPEC states to increase their income at the expense of others as it did two years ago during the last production cut. Many believe that forcing oil to higher levels will ultimately lead to inflation and worsen the situation.

To their credit, most OPEC members are currently talking about “stabilizing” oil prices in the $70 to $90 range. The key question is whether or not they have to power to do this in the midst of a global recession. Some analysts are already talking about oil falling to $50 or even $35 a barrel if the economic situation worsens. Some foresee the cost of exploring for and producing new oil dropping if the recession deepens; others are not so sure.

If it is clear that there is an oversupply, the Saudis will have no trouble cutting production especially as oil is currently selling for less that half of what it was last July. How much of a cut will be made on Friday, and more particularly who agrees to accept and actually sell less oil, will be interesting to watch. Currently a cut of 1-3 million b/d are being mentioned by various oil ministers, but as usual the Saudis are mum. If credit does not free up shortly, further cuts may be necessary to reverse what is sure to be further price drops. It certainly seems that world oil production is going move lower, perhaps much lower, in the near future.