There's modest good news on the gasoline front for U.S. consumers, but don't write (or e-mail or text message) home just yet.

Several key oil-producing nations are preparing for the prospect of $45 per barrel oil, indicating these oil exporters believe the price of the world's most important commodity is likely to fall more amid both U.S. and global economic recessions.

Saudis prep for oil's slide

Saudi Arabia, which possesses the largest proved oil reserves in the world, has passed a government budget that's prepared for $45 oil, stratfor.com reports. Meanwhile, Nigeria and Libya have reduced their 2009 oil price forecasts to $45.

Oil, which has plummeted more than 60% since hitting a record high of $147.27 this summer, fell another 48 cents to $58.85 per barrel in Wednesday morning trading.

Economist Richard Felson said the oil price plunge and the gasoline price drop it has created is good news for U.S. motorists, with certain qualifiers. "It is an astounding drop, approaching a $100 per barrel drop, and that has taken pressure off refined energy products," Felson said. "The problem is, if analysts are correct about $40-45 per barrel oil, it implies a slowdown in U.S. and global GDP that will likely mean large layoffs, which isn't good for anyone."

What a difference a year makes.

A year ago, October 2007, oil vaulted above $85 per barrel on its way to the unheard-of (at that time) price of $100 per barrel. Oil would reach a high of $147.90 per barrel in July.

Along the way several research reports predicted a $175-$200 price for oil in the near future. The weak dollar played a role in the astronomical price rise of the world's most important commodity, as did speculative and momentum players (hedge funds, investment funds), but the real culprit was rising emerging market oil demand.

Another October Surprise (of sorts)

Fast-forward to this October: emerging markets are still growing, but every other factor is now bearish for oil, says energy trader Jim Dietz, and oil's price is in free fall, plunging another $3.99 to $67.55 per barrel Wednesday morning. The United States economy is in recession -- not officially, but nearly every key indicator is. The U.K. and E.U. economies are slowing. Moreover, the financial crisis threatens to slow the growth in global trade, if not lead to outright trade volume declines, implying further declines in projected oil demand. "It's a market that's pricing in substantially slower global economic growth, possibly a global recession," Dietz said. He added that he was currently short oil, with a monthly contract.

Moreover, those searching for an oil bottom may be hard pressed, Dietz said. "There's considerable technical support for oil in the $63-67 range and then again at $60, but these barriers have not provided much support in this market," he said. "That leads me to believe that the unwinding [closing] of hedge fund positions is a big factor in driving oil lower. They're getting out of crude, big time."

Oil prices, the source of so much inflation and consternation in the developed and developing world, are expected to continue to slide toward $60, economists and traders say, even as OPEC prepares to cut production at a special meeting this week.

Oil has fallen about 50% since hitting a record high of $147.27 per barrel in July, amid a financial crisis that's slowed growth in every region of the globe. Further, OPEC, which produces about 40% of the world and will hold a special meeting October 24, will only able to slow oil's descent to the $60-range, with anticipated production cuts, so says economist Peter Dawson.

"The report that China's economy grew at a 9% annual rate in the third quarter is the last piece of the oil demand puzzle, as far as the slowdown is concerned," Dawson said. "China was growing at better than 10% in the same quarter a year ago, so that will further reduce the growth in global oil demand, which is bearish for oil prices. Prices will most likely slide toward the $60-range by mid-2009." Oil rose $1.35 to $73.20 per barrel in Monday morning trading.

August 2007. You remember the month.

Oil had zoomed through $70 on its way to almost $100 by year's end, and soon there were research reports arguing that oil would top $150 or even $200 in the year ahead, on surging global economic growth.

Few knew it then, but the month also marked the start of the subprime mortgage default problem -- first deemed isolated, then sector-wide in scope, and that now encompasses every corner of the globe, in the world's most serious financial crisis since the Great Depression.

Concern over the credit crunch and an accompanying slowdown in global economic growth sent oil prices below $70 Thursday for the first time since August 2007, with crude plunging $5.04 to $69.50 at mid-day. Oil has now fallen 53% since hitting an all-time high of $147.27 per barrel in July.

The other major energy commodities also continued their nearly month-long downtrend. Heating oil fell 11 cents to $2.07 per gallon, unleaded gasoline plunged 17 cents to $1.61 per gallon, and natural gas fell 6 cents to $6.65 per million BTUs.

OPEC again cut its forecast for 2009 global oil demand, the cartel announced Wednesday in its monthly report, raising the specter that hawkish cartel members will push for production cuts at a special meeting next month.

OPEC now believes (pdf) that 2009 global oil demand will increase by 800,000 barrels per day to 87.21 million barrels, compared to the previous forecast of a 900,000 barrel per day rise.

OPEC said its production in September averaged 32.16 million barrels per day, down about 310,000 from August.

Energy prices continue to fall

Energy prices retreated Wednesday on the news. Oil fell $3.44 to $75.21 per barrel. The other major energy commodities also fell in early trading Wednesday, continuing their nearly month-long downtrend. Heating oil fell about 5 cents to $2.20 per gallon, unleaded gasoline declined about 8 cents to $1.80 per gallon, and natural gas fell 7 cents to $6.66 per million BTUs.

In its report, OPEC said that even if governments are successful in unfreezing credit markets, the fallout in the real economy is expected to be considerable. The credit drag, combined with decelerating growth in both developed and developing world economies, will weigh on oil demand throughout 2009. OPEC has called a special meeting for November 18 to address what it argues is an oversupplied global oil market.

As national policy makers strive to unfreeze credit markets and end a global financial crisis that threatens to severely damage economies worldwide, Saudi Arabia will not defend an $80 oil price, and instead will let the price of oil fall, to reduce a critical cost stress on the global economy, economists and energy traders say.

Further, despite today's more-diverse oil market characterized by dozens of suppliers, any Saudi decision to not cut production will lower oil prices, Energy Trader Jim Dietz told BloggingStocks Friday.

Saudi Arabia possesses the largest, proven oil reserves in the world. The kingdom also has the biggest, quickly-marketable spare production capacity in the world, estimated to be 1.5-5.0 million barrels of oil per day, depending on the analysis.

'Saudis will let oil price fall, a lot'

"The Saudis are fully aware of the grave situation facing global financial markets and economies. The Saudis are going to let the price of oil fall, a lot. Other OPEC members like Iran or Venezuela may call for a production cut and try to protect their interest, but it's a non-starter, an after thought," Dietz said. "The Saudis know that every stimulative tactic must be used to keep commerce moving and eliminate stress and a lower oil price is part of that solution." (Dietz added that he had no open energy trading positions, his normal stance for a Friday.)

Oil fell $6.94 to $79.65 per barrel Friday at mid-day, as a near-panic atmosphere permeated markets as stocks plunged worldwide and U.S. stock markets declined for an eighth consecutive day. At 12:05 p.m. EDT, the Dow was down 313 points to 8,265 and the S&P 500 was down 38 points to 871.

"An $80 oil price is too high for this economy. It probably was too high for any economy, but that is a debate for another time. Right now, the oil market senses that the Saudis know the price of oil must go lower to reduce financial system stress," Dietz said. "And as the Saudis go, so goes the price of oil."

What's one energy word investors -- and oil/gasoline users -- should monitor?

Ghawar? That's right Ghawar -- a term you don't hear bantered about in the popular press or by major media outlets, but one that is pivotal to the health of the U.S. and global economies.

Located in Saudi Arabia, Ghawar is the world's largest conventional oil field. Oil's price has recently retreated from its latest climb to the stratosphere on slowing economic global growth concerns, but that pull-back, barring a financial calamity, is expected to be temporary -- at best lasting a year or two. Oil closed Friday up $6.67 to $104.55 per barrel. Oil hit a record high of $147.27 per barrel in July.

Oil's price is expected to resume its ascent when both developed and developing world growth return to normal GDP growth rates. Ghawar's significance? There has been chatter that the Ghawar oil field was beyond optimum; i.e., that its production had peaked.

Saudi Arabia has categorically and repeatedly rejected any contention that Ghawar's production has peaked. However, Saudi Arabia does not release field-specific production data.

Who provides the best analysis of Saudi oil production? Dozens of research firms abound, but the view from here argues that data provided by Cambridge Energy Research Associates and the International Energy Agency get high grades for accuracy.

With the latest credit market jolts leading to Lehman Brothers Holdings Inc. (NYSE: LEH) decision to file for bankruptcy and the Bank of America Corporation's (NYSE: BAC) move to acquire Merrill Lynch & Co., Inc. (NYSE: MER), it may seem like a misapplication of analysis to discuss oil.

Not so, says one energy trader. "Oil can be a factor in righting the markets and the U.S. economy," Energy Trader Jim Dietz told BloggingStocks Monday afternoon.

How so? "A substantially lower oil price will increase disposable income, help put a lid on rising business costs for transportation and heating, and lower the U.S. trade deficit. These are all good things, shots in the arm for the U.S. economy," Dietz said. "And right now we'll take any shot in the arm we can get." Dietz added that he was currently short oil, with a monthly contract.

Oil Monday afternoon was down $4.25 to $96.93 per barrel, continuing a two-month trend of lower oil prices. Oil hit a record high of $147.27 per barrel in July 12.

One wouldn't call it the best week in the world for OPEC.

Once again, the world's best-known cartel has demonstrated that the coalition is not as cohesive or harmonious as a symphony orchestra.

Saudi Arabia, in confidential communications, let it be known that the kingdom would ignore the stated intent of other cartel members and continue to pump plenty of oil, The New York Times reported.

On Wednesday, OPEC announced that members would redouble effort to adhere to production quotas -- not exceed them as some members typically do -- an effort that, if effective, would be tantamount to a roughly 500,000-barrel per day cut in production, The Times reported.

OPEC's hawkish members said lower production is needed to eliminate what it believes is an oversupply in the market, and they cited this as the reason oil's price has fallen about 30% in two months to the $100-range, Bloomberg News reported. Oil closed Friday up 31 cents to $101.18 per barrel.

Saudi Arabia is the senior member of OPEC because it is the largest oil producer in the group. It sat by and watched the cartel say it would cut daily production by 550,000 barrels. The argument is that demand for oil has been dropping, leading to "oversupply"

The Kingdom said the rationale was hog wash. According to The New York Times, "Saudi Arabian officials assured world markets on Wednesday that they would ignore the wishes of other cartel members and continue to pump plenty of oil."

So much for OPEC's threat. Having its largest member break ranks takes away most of the leverage that the organization has if it wants to convince consuming nations that they face tight demand. So much for the idea that oil prices can be pushed up by OPEC refusing to keep oil flowing in the case of a cold winter or rising demand from China and India.

If oil prices are going to move back toward $120, it would take an extraordinary increase in consumption in the U.S. With fewer people driving and airline travel down, that is not likely to happen. The Saudis have taken care of the supply-side leverage.

Oil is going to stay near $100.

Douglas A. McIntyre is an editor at 247wallst.com.

The head of Saudi Arabia's oil operation said Tuesday global oil supplies are "well-balanced," and the oil market breathed a sigh of relief.

Ali Al-Naimi, Saudi Arabia's oil minister, in Vienna for OPEC's September meeting, added that he sees healthy inventories, Bloomberg News reported Tuesday.

The above comments were enough to convince energy traders and economists that OPEC will maintain current production levels when it meets later today, and oil fell $1.99 to $104.35 per barrel in early Tuesday trading.

OPEC a bigger concern than Hurricane Ike

Economist Peter Dawson told BloggingStocks Tuesday analysts and traders are certainly watching Hurricane Ike, a Category 1 hurricane that's likely to strengthen and hit Texas' oil-rig-laden coastline, but the larger concern remains OPEC.

"Of course, all eyes are on Hurricane Ike, which could cause loss of life and also significantly damage to property and oil facilities, but oil industry preparation has advanced and we're much better able to cope with these storms than even 10 years ago," Dawson said. "In comparison, an OPEC production cut is something no one can prepare for."

With oil prices falling, some members of OPEC would like to see price cuts to put upward pressure on crude. That would make sense. It would bring members of the cartel more money and stretch out the pace at which they need to ship their current reserves.

Venezuela, where the head of state Hugo Chavez seems to have no love for the U.S., has lobbied fellow OPEC members hard to dial back oil shipments. The Arab states may not be so eager. According to Bloomberg, "Saudi Arabia, the world's biggest producer and de facto leader of the 13-member Organization of Petroleum Exporting Countries, the United Arab Emirates, Qatar, and Kuwait may reject calls from Venezuela and Iran to trim supplies at its Sept. 9 meeting in Vienna."

Increased cash flowing into the Middle East is feeding sharp increases in inflation, but that may only be a small part of the reason behind the motivation to do nothing with fuel supplies.

Saudi Arabia and its neighbors know that extremism continues to grow in the region. They are also not geographically far removed from the trouble in Georgia. The nation, which is at "war" with Russia, is close to the norther border of Iran. In other words, there is more than one threat to stability in the region.

The United States keeps a tremendous military force in and around Saudi Arabia. The kingdom may not want to go any further than it has to alienate America.

Douglas A. McIntyre is an editor at 247wallst.com.

OPEC nations had their most profitable half-a-year ever. According to the FT, "Members of the Saudi ­Arabia-led oil exporters' cartel took home $645bn (£335bn, €430bn) between January and June." That number could get even better in the second half.

OPEC may be doing exceedingly well and it may be building huge sovereign funds to invest in crippled financial companies in the US and EU, but it is taking on a substantial risk.

OPEC has kept is production fairly flat. The organization has done very little to abate the run-up in oil prices. That run-up has been the one of the two or three largest contributors to a slowdown of economies in the West.

A full-blown and deep economic recession is likely to spread from the West to China and India. If the US consumer cannot afford much beyond his mortgage, gas, and food, imports will suffer, perhaps substantially. Falling demand for imports in the US could spread to the energy-hungry countries of the developing world. In other words, demand for crude could collapse as demand for exports falters.

A sharp drop in oil demand could do terrific harm to the pace at which OPEC takes in cash. Record income may seem good for now, but it could drive very unpleasant and unintended consequences.

Douglas A. McIntyre is an editor at 247wallst.com.

Oil's four-year bull run to +$140 per barrel has increased the wealth of 'petrodollar' nations, and is about set to propel another shift, this time in the bond market.

Petroleum-exporting nations, such as Saudi Arabia and Russia are set to become the biggest creditor nations to the U.S. Government, Bloomberg News reported Monday.

Holdings of petrodollar nations increased 44% to $510 billion through April, Bloomberg News reported Monday -- an increase pace that's set to displace Japan, which holds the largest amount of U.S. Treasuries, at $592.2 billion.

Oil rose about 20 cents to $145.28 per barrel in late Monday afternoon trading.

At first glance - - investigating whether OPEC will be able to stunt oil's rise to $150 per barrel may seem moot.

Not so, says energy trader Jim Dietz, and he cited three reasons.

First, the oil shorts - - those who believe oil is overpriced / too high - - are likely to mount a rigorous defense of $150. (Oil traded up $4.75 to $146.40 per barrel Friday at mid-day after hitting a record high of $147.27 earlier in the day.) "It will not be an easy barrier to mount. It will be easier to break than the $100 barrier but keep in mind it took several months and at least 5 sequences to break $100, once we got within the range," Dietz said. "Look for almost as tough price resistance at $150."

Second, many oil longs - - those who calculated that oil is trending higher - - will take profits at $150, Dietz said. "The $150 mark will result in many players and institutions cashing in their long trades, on rationality grounds," Dietz said. "For example, if you established trades at $80 or $85, common sense says $150 represents a good time to exit. Likewise for more-daring institutions that went long above $100. The thinking will be 'We're at $150 after a high entry point. How long do we expect this insanity to go on? Let's take some profits and reduce our exposure.' That will add to selling pressure." Dietz added that he is presently flat, or has no open energy trading positions - - his normal stance for a Friday in the summer.

Finally, those facts, combined with already-announced oil production increases by Saudi Arabia, will enhance OPEC's ability to slow gains in the price of oil near/at $150 per barrel, Dietz said. Further, Dietz believes Saudi Arabia will announce still another production increase, perhaps as large as 300,000 barrels, to calm markets, "and eliminate doubts in some energy corners about its spare capacity and ability to ramp-up production."