Oil falls to $39 on slumping U.S. demand concerns

Will OPEC members 'cheat' again?

Economist Richard Felson told BloggingStocks Friday the falling price for crude oil will likely spur OPEC to implement additional production cuts, but it may also lead to 'quota cheating.' Cheating occurs when OPEC members pump slightly more oil than their pledged maximum production.

"Historically, OPEC some members, such as Nigeria, have pumped more oil than they were allotted, to reap more revenue. The problem with that obviously is it doesn't reduce supply enough, and the price is not supported, usually leading to more price declines," Felson said. "Given that many OPEC states have large fiscal budgets, I'd expect some cheating to occur, which will keep oil prices under pressure."

Another major factor in oil's price, of course, is U.S. demand, which shows no signs of growing, Felson said. "Rising unemployment means fewer drivers on the roads going to work in the U.S., which is bearish for oil consumption in the U.S. and oil's price," he said. The U.S. economy lost 598,000 jobs in January 2009, with the nation's unemployment rate rising to 7.6% from 7.2%, the U.S. Labor Department announced Friday.

Oil Analysis: For investors, at some point oil stocks and oil-related plays will have valuations so low, they may be impossible to pass up. Still, absent a major production cut by OPEC, given the pronounced U.S. recession and rising unemployment, oil is likely to continue to fall, even though some analysts view it as undervalued right now. Oil could trade under $30 for many months - - something to consider before venturing forth with an oil play.