OPEC ready to commit to hefty cuts: Report

OPEC appears ready to commit to a cut in existing production levels of some 1 million barrels per day (bpd), or more than 3 percent, but is reluctant to dig deeper at this stage, ministers and delegates said Thursday.

Instead, some are pitching the possibility of an emergency meeting in late January or early February at which a cut in the group's output ceiling of 500,000 bpd may be introduced.

If a quota cut is implemented, then the Organization of Petroleum Exporting Countries would have cut outright output in preparation for weaker second-quarter demand by 5 percent, or 1.5 million bpd against current levels.

Excluding Iraq, OPEC's 10 other members pump some 1.1 million bpd beyond the 27 million bpd self-imposed limit, leaving the group room to cut real production without altering the target.

A senior OPEC source attached to a Gulf delegation said there is growing support for quota compliance among members.

"There will be support for a cut" in current production levels down "to the ceiling, which will mean about 1 million barrels a day off the market if everyone sticks to it," the source was quoted by Dow Jones Newswires as saying.

It "would be difficult to cut below" the ceiling at this time, he added.

Crude oil stocks aren't building too fast, so a cut in the group's ceiling looks unlikely, Alexandre Kervino at SG Securities in Paris said.

Kuwait's Oil Minister Sheikh Ahmad Fahad Al-Ahmad Al-Sabah said OPEC must end its quota-busting now but should wait before implementing a near-2 percent cut in its official output ceiling.

Al-Sabah said: "I think we can cut all overproduction and then think about reducing 500,000 bpd from the official ceiling."

Ali Naimi, Saudi Arabia's Oil Minister and the group's de facto leader, said no output decision had been made and the outcome Friday remained open. "Then we will tell you the pulse, whether people are happy or unhappy. We come with an open mind and we review the data."

He left the door ajar for a possible output change: "I am interested in keeping the market in balance," he said. "We never meet without an objective. There has to be an act."

OPEC meets Friday in one of its most important meetings this year, and official comments revealed both concern over falling prices and fear that too strong a move to cut production would send the wrong signal to consuming countries, and further muffle economic growth.

Early Thursday, OPEC President Purnomo Yusgiantoro made the case for not being too hawkish: "Because demand is strong and the price is still high, so overproduction should be allowed."

The United Arab Emirates' new oil minister, Mohammed bin Dhaen al-Hamili, said OPEC quota busting must be tackled to offset the dramatic oil price fall, but it was premature to discuss a cut in the group's output target.

OPEC has reaped windfall revenues from global crude prices that have climbed since the end of April 2003 in the aftermath of the U.S.-led war in Iraq.

But benchmark U.S. crude futures have fallen by almost a quarter since they punched to nominal record $55-plus highs in late October. The decline has been sharpest in the last week or so, spurred by out-of-season builds in U.S. petroleum inventories, mild winter weather and with little sign of a slowdown in OPEC's gushing production volumes.

UAE's Al-Hamili said: "I think the price decline was expected but the speed of the decline was a surprise."

The price falls have put OPEC center stage this week as it decides, in effect, what floor it can set for crude prices.

Yasser Elguindi, managing director of Medley Global Advisors, said: "It's tough for them because if they cut now everyone will think their floor is $40, but it is not about the price today but rather the price three months from now."

He said it has to take some supply off the market but "the big question is, will they throw out a number? If they respect their quotas that would be pretty good for the market."

With Iraq's output included, OPEC is pumping some 30.1 million bpd. Saudi Arabia would bear the brunt of any real production cut, as it pumps some 730,000 bpd over its official quota.

OPEC currently has in place a preferred price range, judged on a reference basket of some members' crude, of $22-$28 a barrel, but it is more than a year since prices were inside that band.

Al-Hamli said: "$33-$38 a barrel for the basket range is reasonable, considering the erosion of the dollar." (*)