OPEC Favors Cut to Trim Stocks, Expects Russian Help

Dec. 15 (Bloomberg) -- OPEC should make a “sizable” cut in oil production at this week’s meeting because there are excess global stockpiles, OPEC Secretary-General Abdalla el- Badri said. The group expects Russia to help.

Organization of Petroleum Exporting Countries President Chakib Khelil said all the group’s members support an output cut at the meeting in Oran, Algeria, adding that he’s confident Russia, the biggest non-OPEC producer, will act to support the effort to revive prices. Global stockpile levels are at 57 days of forward cover, higher than their five-year average, Kuwait’s oil minister said.

“Two million barrels below current demand is what you’d need to reduce stockpiles by five days,” said Ronald Smith, chief strategist at Moscow-based Alfa Bank. “Today’s comments point to a larger cut than previously expected.”

The 13 members of OPEC, supplier of more than 40 percent of the world’s oil, are meeting for the fourth time in as many months to discuss production cuts after prices plunged more than $100 from July’s record. World demand will fall this year for the first time since 1983 as the global recession cuts fuel consumption, the International Energy Agency said last week.

“Stocks are very high, we have about 100 million barrels of oversupply in the market, we have to take them out,” El- Badri told reporters when he arrived at his hotel in Oran today.

‘Satisfying’ Price

Oil at $75 a barrel is “satisfying” to producers and consumers, Khelil said. Prices below $70 may cut investment in production, risking a renewed supply crisis, he said, adding that the scope of production cuts will decide how long it takes to remove surplus inventories from the market.

Crude oil for January delivery rose as much as $3.77, or 8.2 percent, to $50.05 a barrel before falling back on the New York Mercantile Exchange. The contract closed down $1.77, or 3.8 percent, at $44.51 a barrel.

“There is a big surplus in the market,” Kuwaiti Oil Minister Mohammed al-Olaim told reporters on arriving in Oran. “The fundamentals say a cut should be” made.

OPEC, which agreed in October to reduce production by 1.5 million barrels a day from Nov. 1, has implemented 75 percent of the cut, said Khelil, who is also Algeria’s oil minister. Algeria has lowered production by 90,000 barrels a day and is producing 1.3 million barrels a day now, he said.

The group wants Russia to cut output, el-Badri and Khelil said. Vagit Alekperov, Chief Executive Officer of Russia’s largest non-state oil producer OAO Lukoil, said today OPEC is asking Russia to cut oil output by between 200,000 and 300,000 barrels a day. Alekperov and Russia’s Deputy Prime Minister Igor Sechin are attending Wednesday’s meeting.

Kuwait Push

OPEC will probably lower output targets by at least 2 million barrels a day, or 7.3 percent, when its members meet Dec. 17, according to 18 of 33 analysts surveyed by Bloomberg. Kuwait’s Oil Minister said the country will push for a cut at the meeting.

OPEC is “very pessimistic about demand” next year, Khelil said, adding that current stock levels are five days higher than the five-year average of 52 days.

Oil consumption will fall by 200,000 barrels a day in the first quarter of 2009, and a further 1.2 million barrels a day in the second quarter, before rising again in the second half of the year, he said.

The group will meet again in March and start to gather more frequently, Khelil said.

World oil demand is likely to fall by an average of 500,000 barrels a day next year because of high crude prices and slumping economies, the Centre for Global Energy Studies said in a report today.