With market dynamics undergoing massive transition, literally in a matter of weeks, the focus is back on the next move of the Organization of the Petroleum Exporting Countries (OPEC) on the global energy chessboard. In the evolving scenario, eyes are once again set on the next OPEC ministerial scheduled on Sept. 9 in Vienna.

While barley a few weeks back, there was a growing clamor for the oil producers to open their taps; things have taken 360 degrees U turn. Oil prices have lost more than $35 since the peak attained on July 11.

And now there are talks all around of OPEC reining in production of its members to respect their respective production quotas.

And the hawk within the OPEC — Iran — is on the forefront of the drive. Earlier on Saturday, Iran’s OPEC governor Mohammad Ali Khatibi hinted that the oil grouping could decide to roll over or even cut production from existing levels when it meets early September in Vienna .

“If oil demand continues to slow then OPEC should adjust its output accordingly. You can’t increase supply when demand is falling. The key figure is demand,” Khatibi emphasized.

He felt the oil market was oversupplied by around 1.3 million barrels per day. However, he agreed to the possibility that the peak winter demand ‘could absorb most of this excess — unless the slowing economy takes a bigger bite out of consumption.’

Venezuela is also insisting on reviewing the grouping’s output at its next ministerial. Indeed the current seems heading in that direction.

Interestingly, after a long time, the issue of abiding by the OPEC output quotas is also back under hammer. The group’s President Chakib Khelil while on a visit to Iran last week, emphasized that the OPEC members should keep oil output within the agreed targets. The issue of quota is also back on the table and with a vengeance this time, it seems.

Underlining the rapidly changing market dynamics, the International Energy Agency (IEA) has also cut its forecast for 2008 demand of oil from OPEC by 100,000 b/d despite raising the forecast for non-OPEC supply. Production is assuming to be an issue for now at least.

Raising its forecast for global oil demand by 70,000 b/d to 87.8 million b/d the next year earlier this week, the IEA, an adviser to 27 nations, estimated the call on OPEC’s crude in 2009 to average 31.33 million barrels a day, an increase of 90,000 from its previous estimate.

Within hours of the release of the IEA’s sober assessment of the outlook for oil markets, the US Energy Information Administration said US demand had fallen by 800,000 barrels a day in the first half of the year, the largest decline in 26 years. The EIA also cut its forecast for US oil demand for the third quarter, though revised it upwards for the final quarter.

In the meantime, the OPEC forecast for 2009 oil demand growth remained unchanged at the lowest rate in seven years and warned that consumption could fall even further.

The 13-member group left the rate at 1.03 percent, the narrowest since 2002, even after raising its estimates of daily demand in 2008 and 2009 by 90,000 barrels, according to its monthly oil market report.

“Risks to the outlook for the world oil market appear to be on the downside,’’ OPEC said in the report.

Global oil consumption will average 86.9 million b/d this year and 87.8 million b/d in 2009. The increase for 2008 ends a run of downward revisions in six previous OPEC reports.

The slower rate of demand growth in 2009 is due to a major slowdown in transport and industrial fuel consumption not only in North America but also in Europe and parts of Asia, it said.

The London-based Center for Global Energy Studies (CGES) in its monthly oil report also points to the worsening economic outlook suggesting that oil prices were set to fall further. The CGES reports says that recent figures have shown that oil demand was contracting significantly in the OECD countries, while the reduction of subsidies in several emerging markets was also expected to have an impact on non-OECD demand.

The CGES reports emphasizes that the balance of market pressures now seem to have shifted to the downside, at least for the time being, and prices are likely to decline further as long as oil supplies do not fall.

Demand destruction seems to be taking its toll. The focus is hence shifting to the supply side of the balance.

We are now entering a new phase, distinctly different from the recent past.

“Demand for OPEC oil is going to be lower than its production capacity, so the market is looking forward to seeing an inventory build,” Olivier Jakob at trading advisory company Petromatrix stressed.

This is a new situation for the major players. The CGES hence emphasizes, “this would be a new experience for the oil industry and OPEC in particular, because global oil demand last contracted in 1993, and before that in the early 1980s. OPEC has been living for years now in a world of growing oil consumption without investing in much additional capacity. Dealing with falling oil demand is quite different, requiring coordinated cutbacks in oil production to prevent oil prices from crashing.”

That’s an immense challenge. Can OPEC pull this off?