Whats important is that it looks like a fairly sharp economic slowdown has resulted in a demand decrease on the order of 1-2 mbpd. This can and will vary but also we are seeing sings at least the demand is no longer decreasing and may already be slightly rising.

The US uses 25% of the worlds oil so and initial rough estimate is worldwide demand down by 4-8mbd. I'd suggest that the US has the most discretionary oil use ( we are the most wasteful ) So a more refined estimate is probably towards the low side i.e 4-6 mbd.

Underlying this demand decline you have intrinsic growth in demand from our ever expanding population. Lets guess worldwide we see a 1% natural increase in demand from demographic changes. This is roughly 1mbd of intrinsic demand increase thats resistant to decline this is relentless and shifts the overcapacity downwards i.e 3-5mbd.

Given the economic pullback I think its reasonable to expect that real production capacity will come of its current plateau and begin to decline Non-OPEC production has been in decline since 2004.
I'd argue a real decline of 1-2 mbd is reasonable.

Lets go with the low figure this again shifts the spare capacity downwards to 2-4mbpd.

Finally export land may slow but its not going away a lot of the population increases are in oil exporting countries with subsidies.
I don't have WT estimates handy but we can guess that regardless of economic slowdown we will see at least a 0.1-1mbd change in available exports this pulls the range down using the low end estimate again.
Now its sitting at 1.5mbd-3.5 mbd.

Finally last but not lease OPEC itself is cutting back its reasonable to assume that they will achieve a real 2mbd cutback.

This puts spare capacity at -0.5-1.5mbd

Finally we could assume that given this range and the error in the estimates at this point control of oil prices is probably doable by OPEC
They might have to do some additional cutting beyond the current cuts but if demand remains close to its current levels then OPEC should be able to put a floor under oil prices with even the slightest discipline.

As Non-OPEC continues to decline and export land marches on any spare production capacity is completely under OPEC's control in particular if production declines even a bit more then projected here Saudi Arabia alone should soon be able to manipulate oil prices at will since effectively all the spare production capacity whatever it is would be under Saudi Arabia's control.

Thus for now at least it looks like Saudi Arabia alone can finally play the role they have claimed forever which is to be a true swing producer.

Finally depending on how production capacity trends over this year we could easily see this spare capacity dwindle. Sometime in 2010-2012 the world would have no spare capacity with demand within say 1-2% of its current levels.

Looking at US storage levels etc and guessing whats happening it looks like the world overall had excess production of oil of about 1mbd for about sixty days or about 60 million barrels of excess production is floating around our globe maybe as high as 100 million barrels. If OPEC can cut production by 2mbd for 60 days then we should see this spare oil drawn down in about 60 days. This is a very hazy figure but it gives you at least a ballpark figure for when OPEC could conceivably control prices.

Rising prices attributed to OPEC cuts that could disappear at anytime will not spur new investment in production.

Back on the demand side consider a Mortgage Broker making 200k a year selling subprime Mortgages his office is five miles from his house. Assume now he has lost the house has and apt and works at a McDonalds 10 miles from his apt. In this case the oil used by this person has increased significantly despite a massive reduction in his contribution to the GDP. Lets say his GDP contribution has dropped at least ten fold while oil consumption doubled.

The point is after the obvious pullback in spending esp in areas where the economy bubbled i.e housing the relationship between oil usage and GDP is complex and full of numerous counter examples depending on very specific conditions some peoples oil usage goes up some down. Thus the net result is that oil usage becomes somewhat decoupled and in another post it was pointed out that people burn cheap oil to get expensive money. Basically anyone capable of trading energy for money will make the trade. Only if oil becomes expensive again does it make sense that pressure to conserve will exist.

Bottom line is I see no reason that OPEC cannot take control of oil prices and pretty much set them at what ever level they wish. All they need is a small amount of discipline. Next this need for all of OPEC to participate in production cuts is weak and may not even exist right now.
Saudi Arabia may already be able to control production via cuts they are capable of making i.e 1-2mbd. Within 1-2 years they may not need OPEC to cut to control prices. And shortly after that they may well lose the ability to increase production to keep prices in check.

And last but not least outside of a confirmed overproduction of 1-2mbpd for at least sixty days we really don't have a clue where we are at. I think the rate at which US spare oil storage declines will be very telling. If it declines rapidly then this sort of implies that production has fallen off fast beyond OPEC cuts. If the OPEC cuts result in a very slow decline and prices remaining about at this level through the year then it implies we are on the high side and spare production outside OPEC exists or that OPEC itself would have to make deeper cuts then they probably can pull off to restore prices. Regardless I think we will glean a lot of information from how these spare barrels are finally cleared from the market.