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OPEC Plans Drastic Cut In Oil Production
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"We are already putting down the seeds for a new oil spike," Gheit said, noting that the drop in exploration and development spending would mean lower production capacity in the years to come.
For now, however, OPEC is worried about too much capacity and it is hoping that non-OPEC countries will also lower production, whether by design or neglect. Russia will probably send an observer to the OPEC meeting, but analysts say that Russia's production will fall by about a half-million barrels a day next year because of natural field decline and inadequate capital spending by state-owned firms.
Oil prices have also come under pressure since July because financial institutions that had been driving much of the oil trading volume earlier in the year have been pulling cash out of the market to meet pressing liquidity needs because of the credit crunch, oil executives say. Outstanding oil futures contracts, known as open interest, fell 23 percent, according to Bloomberg News.
Prices have been falling over the past five months "because of a combination of the end of the financial bubble and supply and demand," said Routs, the Shell executive. "Banks needed to look for liquidity, and fast."
One sign of the changing attitudes on Wall Street was the recently revised forecasts of Goldman Sachs, which earlier this year predicted that prices would remain very high. In early May, Goldman Sachs analysts said oil prices could average $141 a barrel during the second half of the year.
But last week, the Goldman Sachs analysts issued a new forecast, predicting that oil prices will average about $35 a barrel during the first half of 2009. The firm's forecast for all of 2009 was lowered to $45 a barrel from the most recent forecast of $75 a barrel.
"We think that the sharp and sudden collapse in global oil demand exceeds OPEC's ability to, on its own, balance markets, and necessitates sharply lower non-OPEC crude oil supply," the new report said.
