Opec may cut production

Opec may cut oil production early next year to halt the slide in oil prices, but this could cause a sharp rebound in prices, according to a London-based energy think tank.

Oil prices will likely decline more without Opec cuts, a report said.

Opec may cut oil production early next year to halt the slide in oil prices, but this could cause a sharp rebound in prices if the cuts are too deep, according to an energy think tank. "We expect Opec to act to defend a price floor of somewhere around US$100 a barrel," the Centre for Global Energy Studies (CGES), a respected London-based analysis house, said yesterday in a report. "To do this, they would need to start cutting production at the start of 2009."

The CGES predicted that Opec, the supplier of more than 40 per cent of the world's crude, would trim output by about 300,000 barrels per day (bd) at that time, and by a further 500,000 bd in the following quarter. Oil prices, already down 22 per cent or more than $32 a barrel from their July 11 peak of $147.27 a barrel, are likely to decline further without Opec cuts or further supply disruptions similar to this month's curtailment of Azeri oil shipments through Georgia, the report said.

The risk of an overreaction by Opec is heightened by the organisation's "overly optimistic" view of oil supply growth from non-member countries this winter, the CGES said. "Although new fields have come on stream in the Gulf of Mexico and production is rising slowly in Brazil, problems remain elsewhere, particularly in Russia," it added. Furthermore, if world oil demand was to rise in line with the International Energy Agency's most recent forecast, an increase in Opec output would be needed, it said. Even a moderate production increase could push oil to a new record level of $164 a barrel in the second quarter of next year, the CGES calculated.

On the other hand, falling global oil demand would require "co-ordinated cutbacks in oil production to prevent oil prices from crashing," it warned. Last week Chakib Khelil, the president of Opec, called for the organisation's members to honour their production quotas ? a move that would result in a de facto production cut, as several Opec nations have been pumping oil above their formal quotas. In a key signal that it is preparing to follow Mr Khelil's directive, Opec kingpin Saudi Arabia has recently tightened the discounts on its export crudes against regional benchmarks, indicating that it does not plan a further production increase.

Mohammad Ali Khatib, the Opec governor for Iran, said last week that Opec could cut output at its Sept 9 meeting in Vienna. However, the oil minister of Kuwait, Mohammed al Olaim, has said any quota decrease was unlikely in September, and Ecuador said cuts would be unnecessary.
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