For the first time since OPEC began cutting production last fall, analysts are beginning to wonder if global production finally might be falling faster than demand. Tanker loads of oil that were unsalable a month ago are now selling relatively quickly as Middle Eastern oil exporters are notifying customers of significant reductions in contracted amounts.

By the end of January OPEC production could be down by more than 2.5 million b/d from last summer, led by the Saudis who are on track to cut production by 2 million b/d. Observers note that even Iran, Venezuela, Nigeria, and Ecuador who in the past have ignored OPEC cuts seem to be on board this time.

Some non-OPEC production is dropping too. Mexican production continues to slip and many small “stripper” wells in the US are being closed due to low crude prices. Some predict that North American oil production could fall considerably during 2009.

It will be another 4 or 5 weeks before we have a clearer picture of the supply vs. demand situation. If demand has stabilized then we should see higher prices during the next month. If demand continues to fall and prices fall below $30-40 a barrel, numerous OPEC officials said the cartel is ready to call another emergency meeting in February to make further cuts.