OPEC to cut oil production, tackling falling oil prices

OPEC ministers headed for Vienna on Monday to wrestle with the issue of falling oil prices, with analysts expecting them to agree to trim output to help keep crude above $100 a barrel.

The question facing OPEC, which is to hold a meeting Tuesday, is when, not if, to cut its oil production target as crude prices slide in the face of weakening global economic growth, analysts say.

Most observers expect the 13 nation cartel to agree to reduce its output informally before waiting until later, possibly at a scheduled gathering in Dec, to alter its official output target.

The informal cut will be achieved by members, mainly Saudi Arabia, agreeing to cut their excess production above their OPEC quota, which would remove oil from the market but not amount to a formal change in policy.

"Anyone that is overdoing their quota should respect it," Libya's OPEC representative, National Oil Corporation (NOC) chairman Shukri Ghanem, told AFP by telephone on Sunday. "The market is more than oversupplied it seems."

Under fierce pressure from the U.S, Saudi Arabia agreed in May and June to increase production to help calm the runaway crude market which reached a pinnacle on July 11, when crude struck $147 a barrel in New York.

Saudi Arabia, the world's biggest crude producer, is estimated to be producing about 700,000 barrels per day (bpd) above its quota.

The stakes are entirely different to the last time OPEC members met in March, when crude prices had broken through $100 a barrel and were on a steep upwards trajectory.

This time, oil prices are on the way down and approaching $100 a barrel - a level many members, above all the traditional price hawks of Iran and Venezuela, are keen to protect.

Economic conditions, which determine oil demand, have worsened considerably, with many European economies facing recession, the US struggling & fears growing about the emerging economies of Asia.

OPEC producers have to balance their desire for revenues from high oil prices against the danger that high prices could choke off feeble economic growth.

Analyst John Hall, who runs his own oil consultancy expects a cut in production via a crackdown on overproduction by Saudi Arabia.

"I think they'll hold up at where it is & reinforce targets. That'll bring the output number down," he told AFP.

He estimated that OPEC was pumping about a million bpd more than its output target of 29.67 million bpd, which includes new members Angola & Ecuador but excludes Iraq.

Ecuador's oil minister, whose nation is the smallest OPEC producer, said on Sunday an oil price of $110-120 per barrel was "reasonable" but he suggested OPEC should keep its output steady.

"I don't think there is a possibility of a cut to OPEC production levels in our opinion," he said as he arrived in Vienna. "The production levels are adequate."

On Monday, ministers from Algeria, Iran, Kuwait, Qatar and Venezuela are set to arrive and begin informal talks ahead of the policy meeting late on Tuesday.

The arrival time of Saudi Arabian Oil Minister Ali al-Nuaimi, the de facto leader of the group who is yet to comment on the meeting, is unknown.

The Washington-based energy consultancy PFC Energy believes support is growing for an outright cut to OPECs target despite the unpopularity of such a move in consumer countries where transport and heating costs are rising.

"The focus of debate among OPEC ministers gathering ... in Vienna will not be whether there is a need to cut crude oil production, but rather when," it said in a report.

If not on Tuesday, then a cut would be announced in December at the next OPEC meeting.

"Though Riyadh will not be bullied into agreeing to a production cut, the near consensus within the group that some reduction in volumes is needed ... raises the distinct possibility that the final communique in Vienna will announce an output reduction," PFC continued.

OPEC meets regularly to set its production policy, with each member assigned a quota or production target.