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OPEC: Laughing All The Way To A Production Cut?

AP

OPEC meets at the end of the week and you have to assume they will get together and have a good laugh. Americans are drowning in sub primeslime, a single French trader made $7.2 billion disappear, and all the while, OPEC members are wallpapering their palaces with dollars.

And they have no incentive to change a thing. OPEC forecasts that world oil demand will average 87.1 million barrels a day in 2008 and supply will lag that. The cartel avoids predicting by how much, saying instead that it is difficult to gauge what non-OPEC countries will bring to market. But readers of their monthly report get the picture. Everyone still wants all the oil OPEC can pump.

The real question is: Can what happened to the real estate market, happen to commodities? We’ve already seen the start of it in stocks. Year to date, the big names in energy have lagged the S&P. Conoco Phillips has tanked about 15 percent, while Chevron has lost 12 percent, versus the S&P’s 9 percent decline.

We’ve seen money flow out of the commodities play, based on a fear of slower growth in economies around the world and the sinking price of crude oil itself, which has lost nearly ten dollars since its peak right after the first of the year.

Make no mistake, OPEC is acutely aware of the potential for this bubble to burst. They remember when you could buy a barrel of crude for roughly the same price as a pepperoni pizza. So while they may be laughing and enjoying the premium they are collecting right now, I’m betting that behind closed doors at this week’s meeting, they are also hashing out a strategy of how to cut production if demand begins to falter.

Questions? Comments? energysource@cnbc.com