When prices spiked this summer, the cartel’s leaders attributed the jump to speculation, and Saudi Arabia, the world’s biggest oil producer and OPEC’s most powerful member, opened the taps and increased production to a record of 10 million barrels a day. The Saudis have since pared their output to around 9.5 million barrels a day, according to analysts.
As the lowest-cost producer, Saudi Arabia can afford to let prices fall for a while without hurting its budget. Most analysts estimate that the Saudis could live with oil at $55 to $65 a barrel. But other producers need higher prices. Nigeria’s oil minister said his country would be more comfortable with $80, Qatar has set a range of $70 to $90, and Iran’s representative said that prices below $90 a barrel would hurt.
For Iran and Venezuela, the drop in prices is particularly painful," NY Times
OPEC agreements on production cuts are not going to halt the fall in the world price of crude. The fantastic prices that prevailed in the Summer of 2008 were the outcome of trading in oil as financial investments rather than as commodities. Deregulation led to this as it led to speculative excess in many other commodities (real estate derivatives being the most famous example). A valuation of crude by the financial markets resulted that had little to do with short term demand and everything to do with the boundless "greed" espoused by Gordon Gecko.
The collapse of the stock and credit markets that has occurred has started an unwinding of the fantasy of the false short term valuation of crude oil. At the same time the actual economic slowdowns that are happening around the world are reducing real short term demand for oil to even lower levels. This produces a downward spiral that has a certain built in momentum.
The oil producing countries need the revenues that they were earning at the inflated prices of oil that prevailed last Summer. In many countries the governments themselves are the principal owners of the oil producing companies. A loss of revenue by the oil companies is a direct "hit" on the governments' budgets. Political stability in these countries is to some extent dependent on budgets. Cutting production is a gamble that many of these governments will hesitate to adopt. Cheating on OPEC established quotas for production is an old feature of the oil supply situation. In addition, there will be countries who will simply not "play ball" with OPEC in this.
Conclusion: Production reduction efforts on the part of OPEC will not be fully effective. Demand will continue to fall for some unforeseeable period of time. Therefore, crude oil prices wil continue to decline. To what level will prices decline and for how long? That is not knowable at this time, but It is likely that price will decline to below 50 dollars a barrel. pl