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Consider OPEC as a Central Banker

OPEC will no longer have the ability to manage supply, and oil prices could drop precipitously and even drop through the fixed cost of production, at which point oil production will stop by necessity and the process reverse.

This vicious spiral is not yet a foregone conclusion, but as global economic activity slows, driving down demand for oil, and the price as a result, simultaneously with increasing revenue requirements of cartel members, most importantly Saudi Arabia, the potential for such a spiral also grows.

Although this would be advantageous for consumers and for economic activity globally, it would wreak havoc on countries that rely on oil exports and on companies that are involved in high-cost oil production -- shale, tar sands, deep water and those that require fracking.

As the price of oil at current levels is very close to the price necessary for these new and alternative technologies to be viable and for Saudi Arabia to meet its financial commitments, any further reduction in oil prices increases the probability of a vicious spiral of oil production and reduced prices.

Roger Arnold is the chief economist for ALM Advisors, a Pasadena, Calif.-based money management firm specializing in income-generating portfolios. Concurrent with his other business responsibilities, Arnold was a radio talk show host for 15 years. He focuses on behavioral economics and chaos theory, better known as the "butterfly effect." He explains the relationships between political, economic and social systems, and how they are all reflected in the financial markets -- stocks, bonds, commodities, currencies and real estate.

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