OPEC Defers Decision on Output Cut, Seeks $75 Oil

By Maher Chmaytelli and Ayesha Daya

Nov. 30 (Bloomberg) -- OPEC deferred a decision on reducing production this year by two weeks to gauge the impact of earlier cuts, as it seeks to push oil prices back up to $75 a barrel.

Crude has dropped 62 percent from July’s record of $147.27 a barrel as the global recession erodes sales. Ali al-Naimi, the oil minister of Saudi Arabia, OPEC’s largest exporter and its de facto leader, said yesterday that $75 a barrel represents a “fair price” needed to support investment in new fields.

OPEC, which accounts for more than 40 percent of the world’s supply, will next meet in Oran, Algeria, on Dec. 17. In a statement after yesterday’s meeting in Cairo, the group warned demand will be “much lower” than expected a month ago. The cost of crude has continued to slide even after the group agreed last month to lower production by 1.5 million barrels a day.

“The way demand data continues to come out, especially from the U.S., suggests that they will have to cut,” said Raja Kiwan, a Dubai-based analyst at consultant PFC Energy.

Compliance with existing supply quotas is “not good enough,” based on current forecasts, said OPEC Secretary General Abdalla El-Badri. He also urged non-OPEC members Russia, Mexico and Norway to restrain supply, as they did a decade ago when prices slumped toward $10 a barrel.

The 11 OPEC states subject to output quotas will produce 27.8 million barrels a day in November, according to Geneva- based consultant PetroLogistics Ltd., in excess of their official limit of 27.3 million barrels a day.

‘Additional Action’

The Organization of Petroleum Exporting Countries pledged to take any “additional action” needed to stabilize the market in Oran, according to Chakib Khelil, the group’s president. Asked if OPEC would seek to lower output in Algeria, al-Naimi replied: “A cut is possible, we will have to see.” A reduction would not be needed if members achieve 80 percent compliance with last month’s agreed cuts, al-Naimi told Al Hayat newspaper.

The Saudi oil minister said there was a “good logic” for $75-a-barrel, backing earlier comments from Saudi King Abdullah who told Kuwaiti newspaper Al-Seyassah that this represents a “fair price.” Crude for January delivery traded at $54.43 a barrel in New York on Nov. 28.

OPEC abandoned an official price target almost four years ago and ministers’ expectations have changed throughout 2008 as crude rallied to a record $150 in New York in July, then fell below $50 this month. Ministers from Venezuela, Iraq, Algeria and Nigeria also said yesterday oil should cost at least $75.

Outside Help

Producers and drillers from Exxon Mobil Corp. to BP Plc are already suffering from falling prices. OPEC’s export revenue will be $979 billion in 2008, 9.6 percent less than expected a month ago, because of sinking crude prices, the U.S. Energy Department forecasts.

El-Badri called for outside help to halt the plunge in prices. “All non-OPEC should come and help, it is a big burden for OPEC,” he told reporters. As well as Russia, “the ones we know that have the capability to cut are Norway and Mexico.”

Russia’s energy minister is expected to attend the Algeria meeting, El-Badri said. His plea for help elsewhere may fall on deaf ears after Norway, the world’s fifth-biggest oil exporter, ruled out production cuts earlier this month. “I don’t see any scenarios with regards to that,” Norwegian Oil Minister Terje Riis-Johansen said in a Nov. 18 interview.

OPEC will likely lower supplies before the end of the year, according to 18 of 21 analysts surveyed by Bloomberg last week. About half of those thought an accord would be made in Cairo, while others expected a decision later. Twelve predicted the reduction will be at least 1 million barrels a day, more than is pumped by Qatar.

Cairo Meeting

Venezuelan Energy and Oil Minister Rafael Ramirez said after yesterday’s “consultative” meeting in Cairo that OPEC will still need to cut production by at least 1 million barrels a day by the end of the year.

OPEC called ministers together in Cairo yesterday rather than wait until its next scheduled December conference in Algeria, as the slowing world economy reduced global consumption faster than expected. In September, the group urged greater compliance with existing output limits.

The Cairo meeting, originally intended just for ministers from Arab nations, was expanded into a full meeting for all OPEC members, including countries like Venezuela, Iran and Angola.

OPEC members have a balancing act to perform as they strive to boost prices without overreacting in terms of production cuts and being blamed for exacerbating the economic slowdown.

Demand for oil may fall for the first time since 1983 next year, Merrill Lynch & Co. said, as the U.S., Europe and Japan face their first simultaneous recession since World War II.

Jakarta Meeting

Eleven years ago, OPEC members bickered over quotas as prices slid 28 percent in 10 months amid the onset of the Asian financial crisis. At a meeting in Jakarta in November 1997, they raised quotas, even as economic turmoil in Asia was slowing demand and prices fell another 44 percent by December 1998 to a low of $10.35 in New York.

OPEC’s 13 member nations include Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Indonesia is expected to leave the group at the end of the year.

To contact the reporter on this story: Maher Chmaytelli in Cairo at mchmaytelli@bloomberg.netAyesha Daya in Cairo at adaya1@bloomberg.net