OPEC Likely to Cut Output 1 Million Barrels, PFC Says

By Grant Smith

Oct. 15 (Bloomberg) -- OPEC will probably announce a production cut of 1 million barrels a day at its November meeting, said PFC Energy, an industry consultant that correctly called the decision at the group's last summit.

The Organization of Petroleum Exporting Countries, due to meet Nov. 18 in Vienna, is concerned the 47 percent drop in crude prices from July's record indicates that supplies may overtake demand, according to Washington-based PFC. A million barrels is about 3 percent of the group's current output.

OPEC, whose 13 members produce more than 40 percent of the world's crude, announced the November meeting last week as oil plunged on concern the financial crisis will push the world into recession, cutting energy demand. The group's president Chakib Khelil said a production cut is ``very likely.'' Saudi Arabia, the world's largest exporter, hasn't said whether it would support a reduction.

``There's a growing consensus among the group that they should take a million barrels off the market,'' PFC analyst David Kirsch said in a telephone interview from Paris today. ``Saudi Arabia may not have been behind the initial public call for the meeting, but they recognize production has to be trimmed.''


OPEC reduced its estimate for 2009 demand for a second month today, by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day.

Overproduction

The day before OPEC's last gathering in Vienna on Sept. 9, PFC Energy said in a report that the organization would likely remove 500,000 barrels a day of ``overproduction'' to observe its official quotas more closely.

While OPEC did not make any formal quota adjustment at that conference, it announced a resolution to observe quotas which OPEC Secretary-General Abdalla El-Badri said would effectively reduce supplies by 500,000 barrels a day.

Twenty-nine of 32 analysts surveyed by Bloomberg prior to that meeting had predicted production would be unchanged.

``They're trying to strike a balance between the risk of over-tightening the market and creating a glut,'' Kirsch added. ``In a perfect world OPEC would like $90 a barrel.''

The plunge in oil prices will cut record revenue for OPEC members. Members are likely to earn $1.08 trillion from exports next year, according to U.S. Department of Energy figures released on Oct. 9. That's less than the $1.22 trillion forecast the previous month.

The 11 members with output targets pledged to keep production at 28.8 million barrels a day at its last meeting, about 520,000 barrels below actual July production. That excludes Iraq, which has no quota, and Indonesia, scheduled to leave the group at the end of the year.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net