“Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude,” OPEC said, adding that prices have fallen to levels that could jeopardize “many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

The 1.5 million-barrel daily reduction exceeded the expectation of many analysts, but failed to rally crude prices which have plummeted 57% since hitting a record high record high of $147.27 a barrel on July 11.  Light, sweet crude for November delivery fell $3.09, or 4.55%, to settle at $64.75 a barrel on the New York Mercantile Exchange Friday.

“The financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular,” the cartel said. “This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time.”

On Oct. 10, the International Energy Agency (IEA) lowered its forecast for 2008 global demand growth by 250,000 barrels per day (bpd) to 440,000. The agency cut its 2009 growth forecast by 190,000 bpd to 690,000.

In its October report, OPEC reduced its forecast for 2009 demand by 190,000 barrels a day, as well. It was the cartel’s seventh-consecutive forecast reduction. OPEC said that total oil consumption in developed countries fell by more than 1 million barrels per day in the 12 months through to the end of September.

Developed nations in 2009 will need only 400,000 barrels a day more oil than this year, the cartel said, whereas demand from emerging markets will increase by an estimated 1.1 million barrels.

The cut announced Friday, effective Nov. 1, was at the high end of analysts’ expectations, but as prices continue to slide, there is now a growing sense that the reduction won’t be enough.

Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, told Bloomberg News that a further reduction of 500,000 barrels a day is possible.

“If prices continue to fall, they may find themselves having to revisit deeper production cuts,” Armstrong said.

OPEC President and Algerian Oil Minister Chekib Khelil said at a news conference that the cuts could reach 1.8 million barrels per day by the end of the year, which would mean an additional cut of 300,000 barrels a day, perhaps at the group’s next meeting in December. He denied that there would be any impact on inflation, or growth, if such a cut were necessary, and that the cartel would be willing to increase production should prices rebound.

With control over 40% of the world’s oil supply OPEC is the arbiter of oil prices. As such, the group walks a very fine line. If the cartel pulls the reins too hard on production, it risks a price spike that would cause demand to drop even further.

“They have to be careful of cutting production in a tough [global] economy,” Phil Flynn, analyst at Alaron Trading told The Associated Press. “They could make [falling oil demand] even worse.”

However, if OPEC overproduces, the price of oil could collapse, just is it did 11 years ago. In 1998, the price of crude skidded 28% over a 10-month period, below $10 a barrel, after OPEC raised quotas in the face of the Asian financial contagion. Oil prices that low make it unprofitable for corporations to begin new projects or seek out new oil sources.

A lack of exploration and development would make the world vulnerable to an energy shock when the global economy regains traction and demand picks back up. In fact, many analysts believe that even at current prices enough projects will be delayed, and enough investment curtailed, to spur a serious rebound in oil prices within the next few years.

Barclays Capital, for one, said the world faces “a serious supply-side crunch” within a few years when world demand comes back online.

“The dominant market view remains that sub-$70 short run prices are a stop on what might be a circuitous route back above $90, not a wind-swept motel on the route to even lower prices,” Barclays said.

Source: OPEC Cuts Output by 1.5 Million Bpd as Oil Prices Slump

Violence has shut about 20% of Nigeria’s oil production since early 2006.

“The market is so concerned about supply that just about any headline can unnerve traders,” said Phil Flynn, of Alaron Trading. “Once prices began moving higher, there was a massive move to purchase futures.”

Also yesterday, the International Energy Agency said it will attend talks convened by Saudi Arabia on June 22 between producers and oil-consuming countries in an environment of record oil prices.

“We would welcome an opportunity to act collectively to reassure the market about future demand and supply balances in order to change the perception of extended tightness,” said IEA Executive Director Nobuo Tanaka.

Source:  Oil Rallies as Roller Coaster Continues - Nigeria Moves to Stabilize Production

The Commodities Future Trading Commission (CFTC), working closely with other international regulators including the Financial Services Authority in the UK, has begun a series of detailed inquiries over concerns that energy speculators are behind the rising oil price.
In a detailed statement, the CFTC admitted for the first time that it began its investigation in December, taking what it called the “extraordinary step” of disclosing the probe “because of today’s unprecedented market conditions”.

The CFTC declined to discuss the specifics of the investigation, but stressed that all of its enforcement inquiries were focused on “ensuring that the markets are properly policed for manipulation and abusive practices”.

“It doesn’t look like the party is over just yet for oil,” says Chris Mayer in The Daily Reckoning. “But even if it is, past peaks in oil give us clues. When you dig a little deeper into those relationships, you find a great road map for making money.

“If you look at the price of oil, you find something interesting. Since January 2001, you can explain the move in the price of oil largely as a function of increasing money supply. As the amount of money grows, the price of oil rises. In fact, almost 87% of the move in the price of oil can be explained by the increase in money supply.”

Meanwhile, legendary oil investor T. Boone Pickens is forecasting higher and higher prices for black gold.  He’s also putting money into new oil companies.

Pickens just bought this new oil company. According to Ann Sosnowski in Taipan Daily, it’s been on a solid run, returning an 83% gain in only four months. But it’s still cheaper than the major oil companies like BP and Exxon Mobil.

Brazilian billionaire Eike Batista is planning a 5.59 billion real ($3.37 billion) initial public offering of OGX Petroleo e Gas Participacoes SA, betting the country’s recent oil finds will lure investors who snubbed 20 IPOs this year.

“The market is definitely not the best right now, but for the oil sector that doesn’t really matter,” said Daniel Gorayeb, chief investment analyst at Spinelli SA, a Sao Paulo- based brokerage. “Brazil is a very attractive investment from a macro point of view, and the outlook for oil exploration in particular makes this IPO even more interesting.”

“Brazil’s Carioca field is a reserve with tremendous potential,” says Jason Simpkins in Money Morning, “as it may hold 33 billion barrels of oil and natural gas. Unfortunately, the field is 170 miles offshore, more than 6,000 feet under the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.

“Technologically challenging, physically intensive and costly projects like these are the future of the oil industry.”

Read on here to for a trio of petro-profit plays.

“Australia, Brazil, and Canada are the ultimate destinations for resource investors,” says Brian Hunt in Daily Wealth.

“Each is blessed with awesome energy, metals, and agricultural wealth… and each ABC currency is soaring right now.”

Overnight, gold has slipped slightly lower in the overseas markets.

Platinum fell below $2040 at the New York open, but caught fire from there, moving steadily higher until a slight easing during the Globex, and ending at $2105/oz., up $18. Overnight, platinum has fallen sharply.

Silver enjoyed a steeper rise than gold’s, leaping from a low of $16.70 at the open to nearly $17.30 at noon, before it too slipped in the afternoon hours to close at $17.13, up 34 cents. Overnight, silver has been flat to slightly lower.
(Click here for charts)

A lackluster day for gold was somewhat compensated for by the positive action in platinum and solid strength in silver.

Gold was supported by a falling dollar but undermined by a step back in the crude price juggernaut.

“Gold is watching while the dollar weakens … and is battling to find direction,” wrote Julian Phillips, of GoldForecaster.com, as he expressed disappointment that the market has not responded more strongly to recent record oil prices and to Monday’s skidding dollar.

Additionally, Phillips added, “We are headed into the quiet season for gold [May to the end of August] but at any moment, reports of another systemic fracture in the financial system could liven it up as happened last year when the sub-prime crisis emerged from the shadows.”

“Many of the factors that have supported the bull market for the precious metals remain in place,” say analysts from Natixis Commodity Markets Ltd.

“Inflationary pressures associated in part with the dramatic rise in commodity prices are continuing; uncertainty in the financial markets as the sub-prime crisis continues to unravel remains an issue … [and there is] increasing acceptance of commodities as an asset class,” they said.

Nevertheless, “these positive fundamentals do not necessarily justify a straight progression for precious metals prices,” the Natixis analysts said, adding that they expect prices for gold to average $875 in 2008.

Under that scenario, gold may already have peaked for the year. We doubt that.

“Whether we are already at the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity,” he wrote. “Oil supply will hardly grow at all, with average production between now and 2012 rising by barely more than a million barrels per day.”

Similar forecasts emerged yesterday, and now OPEC president Chakib Khelil has chimed in with his own $200 call. “Mr Khelil blamed record oil prices on the weak dollar and global political insecurity,” reports the Financial Times. Quoted in El Moudjahid, the government newspaper of Khelil’s home country of Algeria, he said, “I don’t think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the
United States have recorded a surplus and are at their highest level for five years. The prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value
of the dollar. Each time the dollar falls 1 per cent, the price of the barrel rises by $4 and of course vice versa.”

Any comment, Mr. Strong-Dollar Hank Paulson? Hmm, didn’t think so.

Meanwhile, the New York Times, citing Rubin’s forecast among others, points out that non-OPEC oil production is flat-lining and OPEC production likely can’t pick up the slack. Not exactly news to those of us who’ve been paying attention for a while, but it’s worth noting any time awareness spreads.