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.

Another record breaking quarter for the world's largest oil company, as Exxon Mobil (NYSE: XOM) put up some huge numbers once again for its third quarter, surpassing its previous quarterly records.

For its third quarter, the company earned an amazing $14.83 billion. Net income jumped by 58% in the quarter, and worked out to an earnings per share of $2.86 for the July through September period, a time when oil and gasoline prices were both running at record high levels.

Analysts had been expecting to see the company show earnings of $2.38 per share in the quarter.

So just how impressive is this new record profit amount? Pretty impressive when you consider the previous record, which of course Exxon also held, was "only" $11.68 billion, set in the second quarter of this year. That is a pretty nice jump.

Shares of the company's stock are trading up 1.3% immediately following the announcement in premarket trading.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

As we discussed last Friday, the recent drop in oil prices prompted OPEC to meet earlier than planned to discuss possible production cuts, and that is exactly what the group of oil producing countries has decided to do, with an announced 1.5 million barrel a day production cut.

It should not come as too much of a surprise to hear about today's plans. Oil has been falling sharply over the past few months, with a $40 price jump in the last month alone. Over the summer we were talking about the record high oil prices, and it was only this past July when prices were nearing $150 a barrel. How times have changed.

Even with today's announcement, oil is down again, as the market continues to worry about a spreading global recession. Earlier in the session oil dropped as low as $61.00 a barrel, and is currently trading down $3.24 to $62.68.

As has happened so many times in the last several weeks, the global markets have plunged while Americans slept. But the reason for the plunge seems elusive. Articles suggest that stock prices fall due to negative economic news. But such explanations imply that investors are surprised to learn this. And I question whether any intelligent person would be surprised to see evidence of a shrinking global economy and bad earnings.

Here's this morning's carnage. Asian markets were down more than those in Europe which have not been open as long as of this writing.The Nikkei 225 index fell 9.6% -- linked by analysts to Sony's announcement of a lower earnings forecast, Korea's Kospi (down over 50% this year) tumbled 10.6% -- attributed to Samsung's 44% earnings decline; and the Hang Seng lost 8.3%. Meanwhile Europe's major exchanges are down roughly 9%.

With the Dow set to open as low as trading limits allow -- 550 points lower, I find it striking that both the dollar -- at $1.2595 to the Euro -- and the yen -- at 92.61 yen to the dollar -- are rising in value in relation to other world currencies. Since oil is traded in dollars -- this currency strength should offset the impact of OPEC's decision to cut production by 1.5 million barrels a day. So far this theory is working -- the oil price dropped $4 a barrel after the announcement. (It couldn't happen to a nicer bunch of people.)

After some sharp drops in oil this week, the precious crude is trading up a bit today to close out the week, as investors are betting that OPEC is going to step in and announce some production cuts aimed at curbing the sell off the market has been seeing recently.

As we already know, oil traders have been sending prices lower as global recession fears have stoked concerns that a broad economic slowdown is going to lead to a drop in global demand. While that is debatable, it is still reason enough for concern, and has kept prices in a virtual free fall the past couple months.

Before oil's most recent declines, OPEC was supposed to next meet in December, but then decided to move up their meeting to November to discuss the current output levels. Today they announced that they were going to move that date up even a bit more, and will gather next week instead, and traders are expecting to hear the group announce reductions in its output.

Bullish comments from Warren Buffett and better-than-expected earnings from Google Inc. (NASDAQ:GOOG) and International Business Machines Corp. (NYSE: IBM) may not help boost the stock market. Futures were down because of lingering concerns about consumer confidence. Markets in Europe are rallying and were mixed in Asia. President Bush also is scheduled to give a "pep talk" to investors today.

Writing in the New York Times, Buffett said he is buying American stocks. "Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month - or a year - from now., " he writes. "What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up."

Here is a look at other news which may interest investors:

• OPEC called an emergency meeting as oil slipped below $70 a barrel
• Small businesses are feeling the effect of the Wall Street layoffs
• According to the Wall Street Journal, lenders are eager for General Motors Co. (NYSE:GM) and Chrysler LLC.
• Companies are finding it difficult to get financing when they are in bankruptcy.
• New York Attorney General Andrew Cuomo reached a deal with American International Group Inc. (NYSE: AIG) to review compensation paid to former executives.

Oil got off to a strong start today, climbing over $3 earlier in the session, but the last couple hours have seen the precious crude give back its earlier gains and is now trading down slightly on the day at $80.88, down $0.31.

The early day jump was in reaction to continued optimism that a full blown global recession could be avoided with the infusion of $125 billion by the U.S. government into nine major banks.

Last week at this time, we were pretty much all asking ourselves the question of just how bad are things going to get, and this led to a week-long panic in the market that sent all the major international exchanges into free fall. Now it seems like, for the moment, the panic is behind us and investors are starting to suspect that perhaps things are not going to be as bad as people were beginning to believe last week. We won't be looking at the next Great Depression, or so we hope, but with this market, emotion seems to change in a heartbeat.

Based on the decline in two key measures of business risk, it appears that the actions of global financial leaders is beginning to thaw out the frozen credit markets. This improvement means that the dollar will drop as investors take their money out of U.S. Treasury bills to buy stocks. It also means that the price of oil will rise -- since a weaker dollar means it takes more of them to buy a barrel of oil.

What are these measures of business risk? The TED spread -- which is the difference between the three month London Interbank Offered Rate (LIBOR) and the three year Treasury rate -- has declined from its high of 4.65% to 4.09%. This is a big improvement but a far cry from the 1.04% at which it stood a month before. And the the LIBOR-OIS spread -- a measure of inter-bank lending risk -- fell to 3.41% from its record high 3.67% Friday -- still much higher than the 0.30% at which it stood a year ago. Things are getting better but there's a long way to go.

Meanwhile the dollar is losing altitude as oil prices rise. The dollar is losing ground to the Euro now that panicked global investors are getting out of Treasuries. For instance, the euro climbed to 1.3712 dollars from 1.3576 dollars in New York on Monday. Oil hit a 14 month low of $77.70 last Friday but has traded as high as $83 today.

Shares of Exxon Mobil (NYSE: XOM) fell to set another fresh 52-week low today, as oil continues to fall.

Shares of Exxon have traded down as low as $58.30 earlier in the session, and headed into the afternoon session, the stock has rebounded a bit, but is still trading down 8.7% to $62.20, down $5.80 on the day.

It's been a tough week for the stock, which is now down around 21% from its close last Friday.

As recession fears continue to spread, oil has been moving steadily lower, and once again today the precious crude is down, falling another $5.82 a barrel to $80.77, and was under the psychological $80 earlier in the day, trading all the way to $78.61 earlier in the session.

It seems like there is always something to worry about these days. Over the summer, the economy was showing signs of what was to come, but the main concern on most of our minds was not the overall economy. Instead, we were worried about the $4 gasoline that we were pumping into our cars.

Now, the tables have turned, and all we are thinking about is the crashing economy. But at least we can take a little pleasure out of the fact that gas is falling, and should continue to drop.

It wasn't that long ago that we were feeling the full brunt of record high gasoline prices. It was July 17, in fact, when the national average hit its peak of $4.114 a gallon. While prices are still running at historically high levels, they have come well off their summer highs, and are currently sitting at an average of $3.48 a gallon nationwide for regular unleaded. A pretty nice pullback, to say the least.

One of the great things about a global financial collapse is that economic activity slows down so much that people use less oil. And one of the more interesting aspects of this collapse is that despite the terrible problems we face in the U.S., investors are flocking to the dollar as a symbol of permanence in a turbulent world. Since oil is traded in dollars, the combination of a stronger dollar and weaker demand leads to a lower price.

For example, today oil went as low as $86.36 -- which is 41% below its July peak of $147. Meanwhile, the dollar hit a 13-month high of $1.36 to the Euro -- that's 15% stronger than the $1.60 it traded at this summer. That may be because the U.S. passed its $810 billion bailout plan and Europe has not yet figured out what it will do to deal with its financial crisis. Not to worry, oil is still 260% higher than the $24 it traded at in January 2001 and the dollar has lost 48% of its value of $0.92 to the Euro at which it traded back then.

Where do we go from here? That depends on two variables: how much oil-producing nations cut back on production and how the dollar performs relative to other currencies as this global financial crisis unfolds. If oil-producing nations cut back on production, prices will rise as long as the supply contraction matches the decline in demand. And as long as the world perceives that the U.S. is the world's financial safe haven -- the dollar could strengthen. And that would push oil prices lower.

In a nutshell, oil prices will keep dropping unless oil producing nations drastically slash production and the dollar plunges.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Oil prices are significantly down from the summer high of $147 per barrel. Wednesday October 1, New York's main contract, light sweet crude for November delivery, lost $2.11 to close at 98.53 dollars a barrel.

Now Merrill Lynch (NYSE: MER) is slashing its outlook for oil prices. Not only do their analysts believe that oil will drop below $90 a barrel next year, but they add that there is a possibility it may drop below $50. Demand is shrinking and it's hard to call a bottom.

Given all the turmoil in the financial markets this year and with a looming "consumer credit bubble" being discussed in most business publications, it would be very advisable to use any savings from lower oil prices to pay down credit card debt.

One of the main things that was on most of our minds this summer was the record high gasoline prices that gripped the nation. While prices are still very high on a historic basis, the past month has seen a nice drop in prices, and given drivers a bit of relief when they pull into their local gas stations.

According to AAA, gasoline prices fell again today, currently down to $3.683 a gallon for regular unleaded, still pretty high, but much lower than what we were seeing in the middle of summer.

Prices set a high on July 17, with the national average for gasoline going for $4.114 a gallon. While we are all relieved to see prices off their highs, they are still well above where they were at this time last year, when the national average was down at $2.81 a gallon, 31% lower than the current price.

Oil prices have been moving higher today, but have dropped a bit following this week's inventory report that showed mixed signals for oil and gasoline inventories. Oil inventories fell more than expected last week, but gasoline supplies saw a drop that was slightly lower than analysts had been expecting to see.

Going into today's inventory report from the Department of Energy, analysts had been expecting a drop of inventories of 3.7 million barrels, but the actual report showed that last week inventories fell by 6.3 million barrels. This is a pretty hefty drop of 2.1% for the week. Gasoline inventories also fell last week, but the drop was a little less than analyst estimates of 3.6 million barrels, with an actual decline of 3.3 million barrels.

One reason why prices have come back a bit is that analysts had believed that the gasoline report would be more bullish since the report covered the week after hurricane Gustave, and leading into Ike when a lot of production facilities were either shut in completely, or at least working a reduced rate. The report indicated that refineries were operating at 77.4% last week, which was slightly below the 77.8% that analysts had been predicting.