The Organisation of Petroleum Exporting Countries (Opec) can stop a steady decline in oil prices by deciding on another substantial production cut and enforcing its first agreement to trim supplies, an energy centre said yesterday.

The Centre for Global Energy Studies (Cges) said Opec has yet to implement its recent accord to reduce output by 1.5 million barrels per day and warned that prices could continue their plunge.

"It took 40 months for oil prices to rise from $50 a barrel to almost $150 and just four months for them to fall back again," Cges said in its monthly oil report, sent to Emirates Business.

"Opec's emergency agreement last month to cut production by 1.5 million bpd has so far failed to halt the price slide and will not do so until real output cuts have been implemented."

Citing its own estimates and other forecasts, Cges said oil demand is expected to continue to be revised downwards and a year-on-year contraction in global oil demand in 2008 and 2009 is now a "very real possibility for the first time for 25 years".

"The path of oil prices will depend on how, and how quickly, Opec cuts production in response to the falling demand for its oil… the output cuts agreed at Opec's meeting last month have yet to be implemented and the Organisation has seen the price of its basket of crudes slip by a further 25 per cent since the cuts were agreed," said Cges, which is run by former Saudi oil Minister Sheikh Ahmed Zaki Al Yamani.

"How much further it falls will depend on how far and how fast Opec member-countries respond with real output cuts… they have already decided to hold a meeting on the sidelines of the OAPEC meeting in Cairo at the end of this month, but there is little point in pledging new output cuts until those already agreed cuts are implemented."

Oil prices have tumbled by more than $80 since their July peak of around $150 and there are fears they could continue their plunge because of weakening demand caused by the current financial crisis. In contrast with the present situation, Opec, which pumps around 40 per cent of the global crude supplies, sought to boost output in July to pull prices down from their peak following growing criticism by Western consumers.

"Rather than seeking a ceiling to oil prices, we are now looking for a floor. The assumed pain thresholds of various Opec member-countries have passed with little sign of customers being turned away," Cges said.

"The price floor presumably lurks at the level at which Opec's members are prepared to sacrifice potential sales and turn customers away unfulfilled, or at which high-cost non-Opec production begins to be shut in. Oil prices will continue to fall until one of these breakpoints is reached."

The Cges said it believes that oil demand growth in Asia, Latin America and the Middle East can no longer offset the continuing decline in the OECD countries, as the demand for Asian-made consumer goods falters and rampant oil demand growth in the oil-producing countries eases.

Despite substantial reductions in the IEA's demand forecasts, the Cges said it remained even more pessimistic, with its Reference Case forecast suggesting that global oil demand will fall in both 2008 and 2009.

The report noted that oil consumers are still responding to the recent high crude prices, while the loss of confidence that has accompanied the financial crisis and worsening economic outlook means that even an easing of oil prices will not halt the decline in demand.

"The Cges' demand pessimism is offset to a degree by our more pessimistic view of non-Opec supply, which we believe is unlikely to show any real growth in 2008 or 2009... Opec's call for support from Russia, Mexico and Norway in cutting production is already being delivered, albeit involuntarily, with production falling year on year in all three countries," it said.

"If prices fall far enough, it may be difficult to cover the operating costs of the most expensive non-Opec production, Canada's oil sands. These may be no higher than $30 a barrel, but will fall further as the cost of generating heat for the extraction process falls. "A series of psychological floors to oil prices have crumbled since early July and the heady forecasts of oil prices above $200 a barrel before the end of the year now belong to a different world."