OPEC to Pump Record Amounts of Crude as $109 Oil Stunts Growth

By Grant Smith and Ayesha Daya

Sept. 4 (Bloomberg) -- OPEC, the supplier of 40 percent of the world's oil, will probably keep producing at a record pace as $109-a-barrel crude squeezes the global economy.

The 13-nation Organization of Petroleum Exporting Countries will reject calls from Venezuela and Iran to trim supplies at its Sept. 9 meeting in Vienna, according to 29 of the 32 energy analysts surveyed by Bloomberg.

``They want to prevent a build-up of crude stocks, which rules out an increase, but don't want to send prices skyrocketing by announcing a cut,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``OPEC won't take any formal action.''

Oil plunged $38 a barrel, or 26 percent, from its record $147.27 on July 11 as economies slowed, the dollar halted a three-year slide against the euro and Hurricane Gustav caused almost no damage to drilling platforms and refineries in the Gulf of Mexico. Demand for crude will increase 1 percent in 2009, the slowest growth in seven years, according to an Aug. 15 OPEC forecast.

Record oil prices spurred European inflation to 4 percent in July and contributed to the first quarterly contraction in the region's economy since the euro was introduced almost a decade ago. In the U.S., gasoline demand fell for 19 consecutive weeks, according to MasterCard Inc., with fuel now near $3.70 a gallon.

The world economy is ``precariously close'' to a recession in 2009, UBS AG said last month as it cut next year's global growth forecast to 2.9 percent. It considers a 2.5 percent rate as one that is consistent with a recession.

Exceeding Limit

Oil for October delivery fell 0.3 percent yesterday to $109.35 a barrel on the New York Mercantile Exchange, the lowest settlement price since April 8. It was the fourth straight decline.

The OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. All the countries except Saudi Arabia are pumping at close to capacity to meet rising demand and compensate for declining supplies from Nigeria, Iran and Venezuela.

While leaving quotas unchanged, the group may curtail production to prevent inventories from swelling, said Adam Sieminski, Deutsche Bank AG's chief energy economist in Washington.

``If prices are rising they will leave production alone, and if they are falling they will trim a little,'' he said.

Oil stockpiles, excluding government reserves, were above average in July and enough to meet 54 days of demand, according to the International Energy Agency in Paris.

Economic Burden

The agency urged OPEC not to cut back because prices are ``putting a burden on the global economy,'' Executive Director Nobuo Tanaka said in an Aug. 27 interview in Stavanger, Norway.

``If stocks were ballooning then you could see pressure mounting within the cartel for a cut,'' said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA.

Most extra pumping came from Saudi Arabia, the world's largest oil producer, which raised output by 500,000 barrels a day in June and July to calm markets.

Venezuela and Iran, OPEC's second- and third-largest producers, want the group to consider reducing supply to keep prices from falling below $100 a barrel.

``Returning to quotas does not mean a production cut, it's a return to previous output commitments,'' Iranian OPEC Governor Mohammad Ali Khatibi said in a Sept. 1 telephone interview in Tehran. ``The result will be a decrease in output, but it's different from a cut in the ceiling.''

Prices of just over $100 a barrel are ``fair,'' Venezuelan President Hugo Chavez said on Aug. 27.

Nigerian Petroleum Minister of State Odein Ajumogobia and Ecuadorean Oil Minister Galo Chiriboga said in the past week that OPEC should maintain current production.

OPEC ``probably doesn't want to see another run at $150,'' said Societe Generale's Wittner. ``But they're worried the $35 downward correction will continue.''

The group meets again Dec. 17 in Algeria.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net; Ayesha Daya in Dubai adaya1@bloomberg.net