OPEC has cut production targets by 1.5 million barrels a day from the existing quota for 11 members of 28.8 million barrels a day. The announcement failed to stem the fall in oil prices.

Oil prices are falling in the face of the fact that demand for oil continues to grow, despite prices that remain substantially higher than a year ago and the spreading global economic collapse. While the International Energy Agency projects demand among industrialized nations to fall 2.2% this year, overall world demand growth is projected to grow by 0.5%.

Demand for transportation fuels in the U.S. continued to fall in August. The Dept of Transportation’s Traffic Volume Trends reports:

“Travel on all roads and streets changed by -5.6% (-15.0 billion vehicle miles) for August 2008 as compared with August 2007. Travel for the month is estimated to be 253.7 billion vehicle miles.”

Calculated Risk has put up this graph showing the annual change in the rolling 12 month average of U.S. vehicles miles driven. The rolling 12 month average is used to remove seasonality.

click to view image

The decline in miles driven we’ve seen up to now is worse than during the early ’70s oil crisis – and almost as bad as the 1979-1980 decline.

The combination of the financial crisis and falling prices continues to impact production plans. Environmental Capital reports that two big Canadian oil-sands producers – Suncor and Petro-Canada – are delaying oil-production projects and scaling back capital expenditure and have pushed back plans to install “upgraders” that can turn tar sands into crude oil. Deutsche Bank said “we are close to the long run marginal cost of supply,” or the point at which tricky new oil-production projects don’t make sense anymore.

Tom Whipple at the Falls Church News-Press (also at The Energy Bulletin) opines that the financial crisis has precipitated the peaking of global oil supplies:

“[W]orld oil production assuredly has peaked due to the financial crisis, so that by the end of this year production is likely to be substantially lower due to lack of demand and cuts. A corollary to this drop is that investment in new oil production projects is already slowing due to “insufficient oil prices” and lack of financing.

Whipple asks a series of questions about the effect of a severe economic recession on world oil production, the answers to which will unfold over the next months and years:

“Will it drop rapidly, or stay on the current plateau?

“Will demand for oil drop so fast that, at least for awhile, it keeps ahead of the declining capacity of the world’s oil fields to produce?

“Can we forget about alternatives to oil for a while as lower worldwide demand means we can get all the oil anybody still wants relatively cheaply?

“Can we afford to transition to alternative sources of energy?”