Quite complicated.

1 Ignoring the economy, there is one demand at 98/b (1/1/08), less demand at 50% higher (147/b 7/08) and more demand down 50% (46/b on 1/2/09). With the economy down and employment falling, there is clearly less demand at each of the above price points than when the economy was at a higher level. US demand could be increasing already on account of lower price - too early to tell. Also, lower price is helping the economy, no doubt this helped retail sales, down a little y/y this xmas season but not as bad as some feared.

2. Saudi is well aware that their own increased output had a lot to do with the price crash, higher supplies coming just as demand was falling on account of high price and a slowing economy. (this increase surprised many at tod, including me, that were expecting permanent declines from the kingdom.)

3. Reducing the supply, as opec is doing, will raise price and further reduce demand. Saudi supposedly wants 75/b... there are growing reports that other members will meet the latest reduced targets. IMO opec is back in the saddle for now, and that price will rebound as time progresses and the cuts take hold. I see now as the ideal time to invest in small us e&p's.