Crude Oil Rises as OPEC Members Prepare to Reduce Production

By Mark Shenk

Dec. 16 (Bloomberg) -- Crude oil rose after Venezuela and Iran said OPEC may need to trim output by 2 million barrels a day at a meeting tomorrow to stop a slump in prices.

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, is ready to make a “big” cut when it meets in Oran, Algeria, Venezuelan Oil Minister Rafael Ramirez said today. Iran supports a reduction of 2 million barrels a day, a delegate from the country said.

“OPEC is expected to cut by at least 2 million barrels tomorrow and we may see them cut even more,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “I wouldn’t be short this afternoon with the impending announcement tomorrow.” Shorts are bets that prices will fall.

Crude oil for January delivery rose 84 cents, or 1.9 percent, to $45.35 a barrel at 9:10 a.m. on the New York Mercantile Exchange. Prices have tumbled 69 percent from a record $147.27 on July 11.

OPEC members and other producers, such as Russia, are under increasing pressure to reduce supplies as oil’s $100-a-barrel collapse cuts export revenue, creating budget shortfalls. World oil demand will fall this year for the first time since 1983 as the recession cuts fuel consumption, the International Energy Agency said last week.

‘Very Strong Decision’

OPEC is asking Russia, the second-largest producer after Saudi Arabia, to cut oil output by 200,000 to 300,000 barrels a day to help revive prices, OAO Lukoil Chief Executive Officer Vagit Alekperov said in Moscow yesterday.

“We have to make a very strong decision,” Ramirez told reporters after arriving in Oran for the meeting. “What’s important is that there’s consensus to cut and that we have to make a big cut.”

Saudi Arabia wants a production cut of between 1 million and 1.2 million barrels a day, Dow Jones reported, citing a person it didn’t identify.

“If this item is true and there is a cut of 1 to 1.2 million barrels, prices are going to drop,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “Anything less than a 2 million-barrel drop would be a disappointment to the market.”

The price slump spurred OPEC to lower output by 1.5 million barrels a day in October, the first reduction in two years. The group, which deferred a decision on further cuts at a Nov. 29 meeting in Cairo, will probably curb output targets tomorrow by at least 2 million barrels a day, or 7.3 percent, according to 18 of 33 analysts surveyed by Bloomberg this week.

OPEC forecasts that demand will shrink next year, the group’s secretariat said in a monthly report today. World oil consumption in 2009 will decline by 0.2 percent to 85.68 million barrels a day, it said. That’s 1 million barrels a day lower than forecast last month.

Brent crude oil for January settlement increased 88 cents, or 2 percent, to $45.48 a barrel on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.