OPEC hawk Venezuela said on Tuesday it would support cutting the cartel’s daily oil output by at least one million barrels in a bid to halt a plunge in crude prices.
Venezuela’s oil minister Rafael Ramirez told reporters on arrival in Oran that the cartel had to try and support prices.
‘In order to do that we should be ready for an important cut,’ Ramirez said.
Asked by how much OPEC should reduce its daily output, he added: ‘A minimum of one million’ barrels.
OPEC officials acknowledge that they are in a tight spot as crude prices dwindle in the face of a global economic downturn that has sapped demand for energy in the industrialised world.
Several OPEC members heavily dependent on oil exports, notably Nigeria, Ecuador and Venezuela, are being squeezed financially as oil prices have plummeted 70 percent fron highs of 147 dollars a barrel just five months ago.
The problem facing OPEC is that whatever steps it takes to reduce supply to shore up prices risks dampening demand as many of its biggest customers are grappling with recession and need less oil.
‘The decision in Algeria will not be whether to cut quotas further, but how large a reduction to make,’ analysts at the Centre for Global Energy Studies (CGES) said in its latest monthly report.
But it warned: ‘If OPEC cuts too far it risks undermining demand even further at a time when the global economy needs moderate oil prices.’
The CGES forecast that global oil demand would fall by half a million barrels per day next year.
‘The weakening economic outlook means that global oil demand will contract for the second year in succession in 2009,’ the influential research group said.
OPEC president Chakib Khelil has said producers are ‘very pessimistic about demand,’ with support unanimous within the cartel for an output cut.
His comments, and those of OPEC Secretary General Abdalla Salem El-Badri who told reporters he wanted to see ‘a very sizeable cut,’ initially triggered a surge in oil prices above 50 dollars a barrel on Monday.
But reality soon set in, according to analyst Andy Lipow of Lipow Oil Associates and prices fell to around 44 dollars a barrel.
‘People continued to look at the demand side of the equation,’ he said. ‘The demand side and the economic situation worldwide continue to pressure oil prices down.’
Added BetOnMarkets commentator David Evans: ‘Oil fell more then 3.8 percent (on Monday) on concern that a potential OPEC output cut may not overcome falling demand for fuels amid recessions in the United States, Japan and Europe.’
OPEC, which provides about 40 percent of global oil output, is also struggling with high crude inventories held by consuner countries, which according to Khelil currently amount to 57 days of supply.
‘The average over the last five years was 52 days, so we have five days of oversupply. That is 400 million barrels.’
Oil analyst John Hall said ‘the level of inventories held by (industrialised countries) in the Organisation for Economic Cooperation and Development has led OPEC to talk of the need to balance’ the market in recent months.
‘Stocks held by consumers currently stand at fifty-seven days, well above their five-year average for the time of year.’
But he added that ‘a sizeable cut combined with the seasonal uptick in winter demand could indeed lead inventories to erode.
‘However, much depends on whether individual members have the discipline to make good on their commitment.
‘And here it is what the market thinks that really matters; if the market does not think that OPEC can fully commit then prices are likely to fall further in the face of weakening demand,’ added Hall.
