OPEC May Consider Supply Cut as Oil Stockpiles Rise, Iran Says

By Ayesha Daya

Aug. 12 (Bloomberg) -- Oil prices are falling because of an oversupply of crude, and OPEC may consider cutting production at its September meeting to achieve a supply-demand balance while maintaining sufficient excess capacity, Iran's OPEC governor said.

``I think the market is oversupplied, especially with the additional barrels of oil coming from spare capacity,'' Mohammad Ali Khatibi said in a phone interview from Tehran today. ``If producers prefer a balanced market, then the additional barrels should be removed, but if they decide there should be more stock build-up, then they will maintain production.''

OPEC governors at the group's meeting in Vienna on Sept. 9 ``will review the market deeply and then advise'' the ministers on production, said Khatibi, adding it's too early to predict the outcome.

Oil prices have declined 23 percent in less than a month on signs that demand in the U.S., which absorbs a quarter of the world's oil, and other consuming countries may fall as the world economy slows. Crude for September delivery was at $113 a barrel at 10:05 a.m. London time, more than $30 lower than the record $147.27 on July 11.

Output Increase

Saudi Arabia, the world's largest oil producer and de facto leader of the Organization of Petroleum Exporting Countries, decided to unilaterally raise output by 500,000 barrels a day during June and July to curb the rise in oil prices as investors bought into commodities as a hedge against a weakening dollar and falling equity markets.

``Demand is not in good shape because of a recession in some industrialized countries, so the price is falling,'' Khatibi said. ``Normally, demand increases in the fourth quarter by around 1.5 million barrels a day which will absorb the extra barrels, but we will have to assess the economic situation in consuming countries.''

OPEC, which supplies more than 40 percent of the world's oil, will meet to review production targets in Vienna on Sept. 9 and then in Algeria on Dec. 17. The group has this year maintained an official output limit for 12 of its 13 members at 29.67 million barrels a day.

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net