But beyond the obvious these numbers show pain in the US economy and that pains mirrors what the rest of the world is or is about to feel. The credit woes that some blame on Wall Street are hitting Main Street but also hitting streets all over the globe. The ECB lowered rates to 3.25% and it only seemed to inspire more worries in the commodities complex. A slight worry trade engulfs as gold rallies, bonds rally and oil falls. That's smells like fear.

 Even the EIA is pondering what an economic downturn could mean for the oil markets and in an era of change they are changing their outlook again for oil. The IEA in their This Week in Petroleum report wrote “Amid increasing concerns about a major economic downturn here in the United States and abroad, one bright spot for U.S. consumers is the continuing fall in the price of oil and oil products. At $2.40 per gallon on Monday, the U.S. average retail price for regular gasoline is down by more than $1.70 per gallon from its peak this past July. To assess what the economic downturn and OPEC's recent announcement of production cuts might mean for oil markets through 2009. The EIA is reviewing previous recessions and OPEC production cuts, examining recent economic forecasts, and running new model simulations in anticipation of Their next Short-Term Energy Outlook that w ill be released on November 12.â€� This will be worth watching and is critical for the Market as the EIA is realizing what is happening in oil is not just a fancy.

The EIA goes on to say that they will focus “on four key components: 1) global oil consumption, 2) non-OPEC supply, 3) OPEC supply and surplus capacity, and 4) exploration and production investment. The balance among these components, along with inventories, determines the degree of tightness in the oil market and, ultimately, crude oil price. This they say is their current thinking on:

Oil Consumption. U.S. consumption of oil, which has fallen by about 1 million barrels per day (bbl/d) in 2008 relative to 2007, is expected to fall again by a smaller amount in 2009. They contrast it to 2008, where skyrocketing prices drove consumption lower. The EIA says that he 2009 decline will be driven by reduced economic activity and will likely be mitigated by substantially lower average oil prices in 2009 compared to 2008. Current expectations at the global level also reflect more pessimistic forecasts for economic activity (though there is a wide range of views on how the downturn and credit crunch will affect economic growth). Under a scenario where global economic growth for the remainder of 2008 and 2009 is 1 percent below the economic forecast used in EIA's October Short Term Energy Outlook oil consumption in 2009 could increase by less than half as much as we forecasted in October.

As for non-OPEC supply the EIA says that existing projects, other than those impacted by taxation regimes in other countries that would result in operating losses in the current pricing environment, will likely continue to operate unless prices fall dramatically, but a global economic slowdown could have important effects on long-term supply.

As for OPEC supply and OPEC spare production capacity the EIA said that a key question regarding OPEC's October 24 announcement of a 1.5 million bbl/d output cut is how much of the announced reduction actually will be implemented now and in the coming months. All OPEC producers except Saudi Arabia have recently been producing at, or close to, capacity. EIA's current working view is that the actual OPEC cut between October and January could reach 1.1 million barrels per day. This represents about 70 percent of the announced cut, compared to a typical 50 percent compliance rate with previous OPEC cuts. While compliance with past announced cuts has often decreased over time, current market conditions and an expected growth in non-OPEC production may help maintain discipline among OPEC members and keep OPEC crude production from rising in 2009. OPEC's non-crude liquids production, which is not covered by its annou ncemen t, is still projected to grow by nearly 1 million barrels per day in 2009, leaving total expected OPEC liquids production in 2009 only slightly below the 2008 level.  The EIA goes on to say that Saudi Arabia the country with the ability and willingness to change production levels the most. The EIA current working scenario assumes that Saudi Arabia reduces production to levels consistent with production in the first part of 2007 in the first quarter of 2009, or nearly 1 million bbl/d below its estimated peak monthly production level in the third quarter of 2008. OPEC surplus capacity could reach 4 million barrels by the end of 2009, (Unheard of in years!!!!!!!!) nearly all in Saudi Arabia, providing Saudi decision-makers with a significant cushion (very Bearish!) that they could use to dampen the impact of future disruptions or geopolitical uncertainties.

Exploration and Production Investment The credit crunch and the recent decline in prices for oil and natural gas are likely to affect exploration and production investment in both OPEC and non-OPEC countries. Some countries with nationalized oil sectors will be under considerable pressure to maintain the flow of oil revenue social programs, reducing resources available for reinvestment in the oil sector. High-cost projects such as Canada's oil sands or Brazil's subsalt, already technically and financially demanding, could face additional challenges to their profitability. (In fact, delays in some new oil sands projects in Canada have already been.)

Today EIA Gas report. EOG says if gas falls below 7 bucks they will cut production. That could give the market a bit of a floor going into the weekly report. We are still short oil after all of these weeks! Wow what a run. Yesterday oil had a chance to break out to the upside but failed miserably. Now oil is attempting a breakout again to the downside. A break close below 6100 or better yet below the psychologically important 60 dollar area should send oil on its odyssey into the low $50 range with the next big support area being $56.    See me today on the Fox Business Network. Also call me at  pflynn@alaron.com or call me at 8009356487  

Short December Crude apprx 7439 on the rollover!!!   Lower stop to 7200!!!!!!!

Buy December Heat Oil at 18000 stop 17600

Sell Dec RBOB at 16100 stop 17400

Buy Dec natural gas at 515 stop 500