OPEC May Trim Oil Supply More, Ignore Low Price Calls (Update2)

Jan. 14 (Bloomberg) -- OPEC, the supplier of 41 percent of the world’s oil, may deepen supply cuts in coming weeks to revive the price of oil, ignoring pleas by consumers to keep costs down as the world’s economy faces its worst recession since World War II.

The Organization of Petroleum Exporting Countries is “willing to cut 2 million more, 4 million more barrels to preserve the price of oil,” Venezuelan President Hugo Chavez told the National Assembly in Caracas yesterday. Saudi Arabia, the world’s largest oil exporter, said it will trim output next month to below its OPEC-agreed target, without waiting for a March 15 meeting.

“They are making announcements of oil cuts in the hope that prices will go up, but they should understand the world economy needs a break from high oil prices,” Richard H. Jones, the deputy executive director of the International Energy Agency, told the Petrotech petroleum conference in New Delhi today. The Paris-based agency advises 28 oil-importing nations on energy policy.

Crude oil lost three quarters of its value since rising to a record $147.27 a barrel in July. It gained as much as 4.4 percent today in New York, to $39.45 a barrel, on signs OPEC is committed to deeper cuts. It later fell to near $36 after a government report showed rising U.S. inventories of gasoline, crude and distillate.

$70 Target

The producer group should aim for $70-a-barrel oil, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said in New Delhi today, adding that prices above $100 are “not logical.” Saudi Arabia has previously said $75 is an appropriate price for OPEC and companies like Exxon Mobil Corp. and Total SA that are developing deep offshore fields and oil sands in Canada.

“While OPEC and basic economics may put a floor under oil prices, we do not see a significant rebound until economic growth begins to turn,” UBS AG oil and gas analyst Jon Rigby said in a research note from London today.

“If oil prices are going to stay above $50 a barrel in 2009 we believe that OPEC will need to present a unified and effective face to the market,” the UBS note said. UBS forecasts oil averaging $60 this year.

Saudi Oil Minister Ali al-Naimi told reporters in New Delhi yesterday that his country was currently pumping about 8 million barrels of crude a day and would trim output next month below its agreed OPEC quota of 8.051 million barrels a day. He didn’t give a precise forecast for February supply.

OPEC has already helped the world economy by raising supply during the second half of 2008 after prices rose to a record, al- Naimi said today at the conference in New Delhi.

Need to Invest

While producers are acting in their own interest by reducing supply now, they say their actions will also prevent a future supply crunch by ensuring adequate investment in new oil fields.

“Stability means oil prices maintained at a level that encourages investment, helping create a climate conducive for the development of all viable energy sources,” al-Naimi said today. “Stability also is defined as a level providing a reasonable return to producing nations, and one that does not harm the global economy, and particularly does not hinder the prospects of developing economies.”

New production targets for OPEC members came into effect on Jan. 1, following a December 17 meeting in Oran, Algeria.

Deep Cuts Needed

OPEC needs to make the deepest supply cuts in its history to comply with the target. Those 11 OPEC nations with quotas collectively produced an average of 27.45 million barrels a day last month, according to Bloomberg estimates, or 2.6 million barrels a day more than the new ceiling of 24.845 million barrels a day. Iraq is exempt from quotas and Indonesia has left OPEC.

OPEC won’t know the full effect of its latest production cut until Feb. 15, the group’s secretary general, Abdalla El Badri said in an interview with OPEC Bulletin published on the group’s Web site.

There has been “almost 100 percent compliance” with two earlier OPEC supply reductions, he said.

OPEC’s decision on output in September amounted to a 500,000- barrel-a-day reduction, which was followed by a 1.5 million-barrel- a-day cut agreed on at an October meeting and a further decrease of 2.2 million barrels a day at its Dec. 17 meeting, he said.

Angola, OPEC’s newest member, will lower its oil production rate to 1.7 million barrels a day next month, the country’s vice minister of petroleum, Anibal Silva, said in an interview in New Delhi today.

Algeria’s state oil company, Sonatrach, also said it has cut crude production to comply with new OPEC targets.

Sonatrach said in a statement today it has “informed its partners of the level of production assigned to each partner” and told customers of “export reductions” to meet its new target of 1.202 million barrels a day.

OPEC’s Vienna-based secretariat will tomorrow publish its next monthly oil market report, detailing its latest forecasts of world demand. A similar report will be issued by the IEA on Jan. 16. OPEC’s next scheduled policy-setting meeting is on March 15.