It looks ugly out there -- check out the railroad tonnage figures posted in Drum Beat today by another poster. Or the deep plunge in cargo through Los Angeles ports. And this recession just ot out the crib.
At least a 10 percent plunge in oil consumption is in the works. I hope it is limited to that. I fear a 15 percent reduction.
And I hope for rapid recovery.
But, global crude oil demand recovery following the 1980 price spike was very slow -- it took a full ten years to recover. This time looks even slower, given the depth of the recession and accumulating marklet reactions to higher prices (until recently). But a guy who bought a small car isn't going to buy a big one right away. If I moved closer to work, now I do not move farther away just because dollar gasoline is back.
$10 oil here we come (Mexico already selling for below $30).
There will be a big big big glut of oil to the moon in 2009. Get ready for $1 gas.

Perhaps the mechanism of periodic deep recessions/depressions
allows the BAU - infinite growth on a finite planet - paradigm
to continue for awhile longer ... In less than a three month
period we've managed to re-set the price of crude from
+$140 to <$45 per barrel .. Ctrl-Alt-Del .. Re Boot !!

We should ( but probably won't ) use this price re-set to
make those infrastructure investments in nukes/renewables/
plug-in-hybrids/rail etc etc

Does society just hit the 'snooze' button or do we
roll up our sleeves and get busy ??

Triff ..

Thats a tough one first how is Iran, Kuwait and Venezuela going to fill this cut they are producing at maximum production already.

I'd say that any cuts made unilaterally by KSA cannot be filled by other producers there is effectively no spare capacity outside of KSA. I'd even give you 500kbd if you wish.

Thus I think the only issue is if KSA itself can cut enough to influence prices and this of course depends on the real change in World demand. Unlike a lot of the new experts on demand I'd suggest that overall world usage once you include growing economies and regions that may have been priced out over 100 a barrel has probably drummroll increased.
Or at best remained flat. Once you include export land the chance of the demand for exports to have actually declined is slim. But with that lets assume fine we don't know for sure what reliable indicators we do have indicate that oil demand is flat to slowly growing. Certainly the rate of growth in demand has slowed substantially but thats not the same as a actual demand decline.

But lets throw in some error in general I like to assume that world oil supply is fuzzy by about 2mbd +/- lets say demand dropped by 2%. Thats about 2mbd so a 2mbd cut by KSA alone should easily be sufficient to allow them to completely control world oil prices. If this is wrong then we could be talking about 4mbd cut in exports. This would require cooperation inside of OPEC.

I'd suggest that if KSA manages to significantly influence world oil prices with a 2mbd cut then they would then have the leverage to force OPEC to cut and additional 2mbd. They would effectively have a gun to the rest of OPEC heads.
I.e if the cut 2mbd and oil prices go to say 80 and they want to force the rest of OPEC to play by the rules then then only need to threaten to undo the cuts. Given that production costs put a floor on the profits the rest of OPEC might for once decide to act like a cartel.

I happen to think for way to many reasons to lists that no real cuts are required i.e once the expectation of a imminent economic collapse passes it will become clear that the oil supply is currently mispriced and should be higher without cuts. How much higher is anyones guess. So I think a initial cut by KSA will be a roaring success.

Well the key is that vast amounts of wealth need to be lost vs commodities as the world move to one more focused on staying alive. Food/Clothing/Shelter. This world obviously has little spare capacity to produce goods outside of those needed for survival so the rate of wealth creation is very low. This is true for any renewable society in the total sense not just renewable energy. This does not mean wealth is not created and does not accumulate. Building are built etc. But the rate is slow and its accumulation of real wealth over a period of years and even centuries. Over time barring war extreme wealth does accumulate even in sustainable societies but with humans at least this wealth often becomes concentrated.

But the point is the amount of money needed by a society that predominately focused on daily needs with locally produced goods and probably small manufacturing for many goods is small. This means exactly what your saying we simply don't need most of the money in existence today at anywhere near its current valuation vs goods. Most of this money is actually debt and will be defaulted on eventually. The rest will need to be lost or devalued significantly. Certainly losing money will be a big factor i.e cash investments but you still in my opinion have way to much money. This will have to be devalued vs goods and services.

During the Depression the money was destroyed via bank failures the accounts where simply wiped out and fractional reserve lending ensured not enough gold existed to back up the accounts. We are not going to let that happen which means that the money supply will be devalued via inflation. Sure it will be expanded but even if its not as people pull back to a more basic way of life you have to much money chasing to few goods this is all thats needed to cause price inflation. Generally its done by expanding the money supply but a contracting basket of goods that people are interested in purchasing does the same thing. Both together decline needed goods (i.e commodities) and expanding money supply makes for inflation for this basket of goods a sure bet.

To prevent price deflation in unwanted goods such as excess housing one would need to expand the money supply even more as the price of preferred needed goods rose.

As long as the government is willing to monetize the debt by accepting effectively default debt at face value in exchange for money and outright cash injections at some point you will get inflation a deflationary end is effectively impossible if your willing to devalue your currency vs needed goods and services.

Given that other economies will attempt to devalue in the race to the bottom you will see commodities again start acting like wealth hedging against inflation.

I don't think oil has fully bottomed yet but its getting very close and the dollar is close to topping price increases now while the dollar is strong will only amplify the effect as the dollar finally weakens.
To some extent I actually hope that oil does not strengthen in price significantly before the dollar begins to weaken because the dollar could slide pretty fast and this would make the shock even worse.

If oil rose to 60-70 while the dollar remained strong that would not be good.

As far as fiat currencies go and deflation etc well the only real way out of this mess is to repudiate long term debt thats not 100% hard money lending i.e only cash loans for debt say over a year. Fractional reserve lending for shorter time limit debts are of no consequence.

Hmm I do think KSA acted to stop the rise in prices I doubt seriously they expected prices to hit 40.

In general if anyone can control the price its them. They do have surge production potential of at least 1mbd for 60 days plus some additional heavy oil production of at least 1mbd. They could have more of both. And finally they may still have some unused longer term capacity. At best 500kbd in my estimate.

So as far as injecting a surge of oil for a short period of time I think most people would agree its possible for them to do that.

On the flip side they probably can unilaterally cut production now enough to set the price of oil within a wide range of values. Historically they have cut 4mbd in the past.

The only issue on the cut side would be is if its enough to offset demand dropping and result in higher prices.
And on the high price side I'd say that a lot of other variables besides their surge where responsible for the drop in prices. So later its not clear a surge would have the same effect and politically its certainly not clear that the would ever surge significantly again given the current situation.

Now unlike in the past there is no large increment of supply coming online or at least not enough to offset declines significantly so in my opinion they are certainly in a position to control the floor price for oil.

And finally understand that even if they announce a cut its takes almost six weeks for the cut to work its way through the supply chain maybe longer. The current round of cuts for example where already happening at least two weeks if not a month before they announced their cuts. So the current round of supposed cuts where already in place well before prices decline significantly from there levels in October. So this is the level they probably planned to be at under the assumption of putting a floor on prices given the conditions back in Sept and Oct.
Additional cuts would then probably not seriously showing up until later in Jan at the earliest. Again it depends on when the cuts started vs when the announce them. My opinion is they have steadily been cutting production so we should see a smooth slid in exports from KSA down at least 2mbd regardless of the timing of the announcements.

Generally they seem to announce cuts in supply well after they are already in the pipeline and well know to be on there way. So if people are worried about there cuts then it get priced in before we hear about it. So if they have cut to the point that prices will increase we will actually see the price increase several weeks before they announce the cut publicly.