Oil prices hit a 6 week high today, as cold weather gripped most of the country.

Over the weekend the nation was hit with a cold front that reminded oil traders that the high demand winter season is on its way, and could help reduce a lot of the oversupply that the market is currently looking at.

Rising oil prices a positive development for economies around the world? For the new investor, that may appear to be a contradiction in terms, but experienced investors know it's not.

The International Energy Agency's 350,000 barrel-per-day (bpd) increase in its 2010 global oil demand forecast to 86.05 million bpd is a positive development for both the U.S. and global economies – positive, that is, provided oil prices don't return to stratospheric levels.

According to the chief economist at the International Energy Agency (IEA) in Paris, the world could be hurtling toward an energy crunch that could effectively kill any global economic recovery. Dr. Fatih Birol said in an interview that most major oil fields in the world have eclipsed their peak production. Birol noted that the public and many governments are oblivious to the fact that oil is running out faster than earlier predicted, with global production likely to peak in roughly 10 years.

Birol said, "One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for the day. The earlier we start, the better." It will not be cheap to convert from our dependence on oil, but the cost may be better than the possibility of having no oil whatsoever; or having $200-per-barrel oil.

Investors thinking about positioning themselves in oil stocks, or in other stocks that would benefit from higher oil prices may want to wait awhile.

Global oil demand -- a major factor in determining oil's price -- is expected to decline in 2009 by 1 million barrels per day (bpd), the International Energy Agency announced Friday in its latest monthly report.

Even more significant, the IEA also decreased its 2008 global oil demand estimate by 70,000 bpd to 85.8 million bpd, a reduction which means oil demand dropped 0.3% in 2008 and is forecast to decline 0.6% in 2009 -- the first 2-year decline in global oil demand in 26 years, or since 1982-1983.

Oil fell 13 cents on Friday at mid-day to $35.24 per barrel. Oil has fallen an astounding $112.03 since hitting a record high of $147.27 per barrel in the summer of 2008.

OPEC cut production by 9% last week, and has pared production by more than 4 million barrels per day (bpd) this year, but even those large supply cuts may not be able to create a bottom in oil's price.

Incredibly, more production cuts may be needed, so say economists. The modifier 'incredibly' is used to describe current conditions in the oil market because less than one year ago the talk was of spot shortages, out-of-control commodity prices due to emerging market demand, and visions of $200 crude.

However, the U.S. economy fell into a recession in late 2007, intensifying the ripple effects of the financial crisis, which pushed the global economy into a recession this year, and the oil market not only just cooled, it collapsed. Oil Friday closed down $2.35 to $33.87 per barrel. Oil has fallen an unthinkable, mind-boggling 77% since hitting an all-time high of $147.27 per barrel in the summer.

Possible 'nightmare' oil producers' scenario

Further, a bottom for oil prices is nowhere in sight, so says economist Peter Dawson. Oil will test $30 per barrel very soon, he said, due to declining U.S. gasoline and oil consumption, and slowing oil consumption growth around the world.

There are data points of consequence, and then there are data points that literally alter business plans and national goals.

The International Energy Agency's December oil market report is an example of the later, as the agency forecasts that 2008 global oil demand will decline - - that's correct, decline - - for the first time since 1983.

Oil demand: from boom to bust

The agency now expects 2008 global oil demand will fall by 200,000 barrels per day (bpd) to 85.8 million bpd, down about 350,000 bpd from its previous forecast.

Further, the IEA also sees slower demand growth in 2009, forecasting 2009 global oil demand to rise to only 86.3 million bpd, but the agency quickly noted that the forecast is based on the International Monetary Fund assumption that the global economy will gradually recover starting in the second half of 2009.

Economist Peter Dawson said the U.S. and global recessions are at the heart of both the world's first oil consumption decline in 25 years and the modest oil demand picture for 2009.

"We have seen two, large, macro changes in the oil market. The first was American consumers finally cutting back gasoline consumption. First the $4 a gallon gasoline price, then simply fewer drivers from rising unemployment, cut U.S. gasoline consumption," Dawson said. "Second, the remaining regions of the world, the E.U. and Asia, followed the U.S. into a recession, flat-lining oil growth in these areas. We now have all three major economic regions of the world in recession for the first time in the modern era, and that's really bearish for oil prices."

OPEC, which Tuesday again lowered its 2009 global oil demand forecast (pdf), is still seen cutting production quotas, but at its regularly scheduled meeting on December 17 in Algeria, not at its special meeting November 29 in Cairo.

Still, the compelling question remains whether OPEC members will comply with existing decisions to lower production, let alone new ones, said economist Peter Dawson.

OPEC problem: production 'cheaters'

"OPEC members are getting into a bit of quandary, and it's one we've seen before, cyclically, in the oil market. States know that if they all cut, their action will support prices some," Dawson said. "The problem has been that historically, some members 'cheat' a little and produce over their quota, thinking their small increase will not affect prices that much, and they will reap extra revenue as a result. When several members do this, the price of oil continues to drop, and so does the cartel's effectiveness."

In the past, cheaters have been small OPEC states, such as Iran, Libya and Nigeria, Dawson said. Oil Tuesday fell 37 cents to $54.58 per barrel. Oil has plunged more than 60% since hitting a record high of $147.27 per barrel this summer, as both long-term investors and short-term traders exited long positions in the markets.

In a new report today, the International Energy Agency warned that an insufficient amount of investment into oil supply is going to result in a serious supply shortage that could make the recent record high oil prices look weak in comparison.

Oil prices spiked to a record high $147 a barrel earlier this summer, but have since been in a pretty steady downward spiral, and were down again today, as the credit crunch and recession fears have created fear among oil investors that oil demand is going to erode over the months to come.

Prices were off sharply again today, and in afternoon trading oil was down another $3.17 a barrel to $56.16, off 5.3% on the day, as the U.S. government lowered its forecast for oil next year to $63.50, down from its previous estimate of $112 that it maintained back in October.

This June, Houston was the most economically attractive place in the country. That was when oil was climbing to its peak of $147 a barrel. Back in those glory days for the offshore oil patch, 81% of oil trading was conducted by speculators who were long oil and short the dollar. But that trade has lost its appeal and now Houston is suffering the effects of a 56% drop in price as the dollar booms 25%.

With the 40% decline in stocks this year and a financial crisis upon us, it looks like New York and Houston -- two cities which are culturally apart -- will both be suffering but for different reasons. Houston is going to suffer due to an expected oil demand slowdown. Despite OPEC's decision to cut its production quotas by 1.5 million barrels a day, crude still dropped $3.39 to close at $64.15 on Friday. Since oil trades in dollars and the world is buying up our Treasury bills due to a belief that the U.S. is a safe haven, the dollar is rising which means it takes fewer of them to buy a barrel of oil.

But despite an apparent slowdown driven by the economic crunch, official forecasts still forecast growth in demand -- albeit at a slower rate. For example, Paris's International Energy Agency (IEA) now predicts global oil demand will average 86.5 million barrels a day this year, up about 440,000 barrels a day from 2007 -- it previously forecast 940,000 barrels a day. This is making Houston's energy sector nervous. Why? The IEA reported that some analysts expect a big proportion of "global drilling rig orders will be canceled."

What's a telling sign of slowing global growth? Continually decreasing oil demand forecasts.

The International Energy Agency again lowered its global oil demand forecasts for 2008 and 2009 as high prices and reduced U.S. consumption lowered overall demand for crude, the organization announced Wednesday. It lowered its 2008 forecast by 100,000 barrels per day to 86.8 million barrels, and 2009 estimate by 140,000 barrels to 87.6 million barrels.

The IEA's announcement had little impact on oil prices early Wednesday as oil rose 60 cents to $104.43 per barrel. However, it should be noted that two bullish factors also affected prices Wednesday: an OPEC announcement of a commitment to existing production quotas with a pledge not to exceed them, as some cartel members have in the past; and Hurricane Ike in the Gulf of Mexico, which threatened to damage oil rigs and infrastructure as it approaches the Texas-area coastline, according to weather.com.

Oil's price surge takes a toll

Oil has declined about 30% since hitting a record high of $147.27 per barrel in July 12. Economist Richard Felson told BloggingStocks Wednesday the dip in oil's price over the past two months is not nearly enough to blot-out the process-changing affect of oil's four-year price surge.

Two organizations, one projection: a forecast of 86.9 million barrels of oil per day consumed in 2009.

The International Energy Agency and OPEC arrived at the same projection, suggesting that, in economist Peter Dawson's interpretation that "2009 is going to be a year of a slowdown in oil consumption growth, which is significant."

Moreover, Dawson is quick to highlight what's important in the above: slowing oil consumption growth in emerging markets. Oil consumption in the United States has been falling for more than two years -- it's projected to drop 3.1% in 2008 and another 2.3% in 2009. It's oil consumption in the developing world, primarily China and India, that really moves prices, Dawson said. Oil Monday closed up 52 cents to $115.11 per barrel.

'A small victory, that we'll take'

Right now it appears, for the first time in more than five years, consumption growth (not to be confused with a consumption decline) will slow, he said.

"It's a small victory, that we'll take, regarding the oil markets," Dawson said. "For the first time in a while we'll see some demand relief internationally, and that has to help lower oil prices."

The International Energy Agency Thursday increased its 2008 global oil demand forecast slightly, citing China's oil demand, the agency announced.

In its monthly report, the IEA increased global oil demand forecast by 0.1% , or 80,000 barrels per day, to 86.85 million barrels per day. The IEA serves as an energy advisor to 27 industrialized nations, including the United States, United Kingdom, Germany, France, and Japan. Oil rose $1.03 to $137.08 per barrel in Thursday morning trading.

Economist David H. Wang told BloggingStocks Thursday he expects China's oil demand increase in 2008 to be "roughly in-line with the IEA's 5.6% growth forecast."

"China may end up registering oil demand growth less than 5.6%, if the Chinese Government continues to gradually increase the retail price of gasoline and diesel," Wang said. "My research indicates we are not seeing demand destruction yet in China, but this could change. Gasoline now costs about $3.30-$3.50 [per gallon] and if China approves another round of increases, demand could begin to be pinched, as it has in the United States."

Another gas price hike in China?

However, Wang said investors / traders should not assume another gasoline price increase nor lower oil demand in China. "China is trying to take pressure off energy prices and slow its economy, but there's only so much they can increase prices before they have serious consequences on its economy," he said. "The middle class can withstand the price increases but may others with lower incomes can not."

Oil prices rose above $142 on a lowered supply estimate and tension between Israel and Iran over Iran's nuclear program.

Oil rose $2.06 to $142.06 per barrel after the International Energy Agency predicted that spare capacity in OPEC will shrink by 2013, keeping the oil market "tight."

Oil bulls were also motivated to hit the buy button after ABC News reported that Israel may attack Iran's nuclear facilities if Iran acquires enough uranium to build a nuclear weapon, citing a Pentagon source who spoke on condition he not be identified.

The other major energy commodities also vaulted higher Tuesday at mid-day on the news. Heating oil rose 8 cents to $3.97 per gallon, unleaded gasoline increased about 5 cents to $3.54 per gallon, and natural gas added 20 cents to $13.55 per million BTUs.

Almost on cue, following oil's $12 rise in two days to $134, the International Energy Agency said the world needs to invest an additional $45 trillion in the decades ahead to vastly expand both nuclear power and wind power capacity to meet global energy needs.

Strictly speaking, the IEA's call to action was rooted in reducing the world's greenhouse gas emissions and achieving what it argues will be "a clean, clever, energy future" and not to move away from oil or fossil fuels solely on cost grounds. (pdf)

Still, the report's 2050 ETP Baseline scenario projects that CO2 emissions will rise by 130% and oil demand will rise by 70% - - the latter total being equal to five times Saudi Arabia's current oil production. If the IEA's oil projection is correct, that would suggest additional large increases in the price of oil in the decades ahead - - on top of oil's more than 400% price rise since 2001.

The price of oil rose to $135 a barrel -- up a mere 463% since January 2001. If supply and demand has anything to do with it, prices will rise more. That's because demand is expected to rise 37%, while supply is optimistically forecast to grow half as fast by 2030.

Bloomberg News reports that the International Energy Agency (IEA) -- oil adviser to 27 nations -- is lowering its forecast of 2030's global oil production. Despite, the lower IEA forecast -- based on an analysis of the world's 400 largest oil fields -- it still forecasts an 18% production increase. But others believe -- in the face of a 37% growth in demand -- that oil production will not reach the heights predicted by the IEA's lower forecast.

Meanwhile, short term US supply is down. AFP reports that Wednesday's Department of Energy report showed US crude oil stocks fell in the week ended May 16, by 5.4 million barrels to 320.4 million barrels -- analysts expected a 300,000 barrel increase. Gasoline inventories dropped by 800,000 barrels, to 209.4 million -- a far cry from the expected 250,000 barrel gain.