30 Nov 2008

OPEC defers new oil supply cut

8:57 am on 30 November 2008

OPEC has deferred a decision on a new oil supply cut amid signs that Saudi Arabia and its Gulf allies are demanding tighter adherence to restraints put in place over the past two months.

Gulf producers want to see strict compliance with recent output curbs of two million barrels a day before considering further reductions when the Organization of the Petroleum Exporting Countries meets in Algeria on 17 December.

"Compliance I think is OK," said Kuwaiti Oil Minister Mohammad al-Olaim. "But the market conditions require us to be 100 percent compliant."

Delegates said that ministers discussed how much more they needed to cut in December. Most, including Gulf producers led by Saudi Arabia, saw a requirement to slice another 1 to 1.5 million barrels a day.

But for that to happen, delegates said, Riyadh wants proof that all fellow members are meeting their part of existing curbs.

"We are very concerned about overproduction," said Qatari Oil Minister Abdullah al-Attiyah.

While OPEC's first priority is to put a floor under a $US90-collapse in oil prices to $US55, Saudi Arabia for the first time in years identified a "fair" price - $US75 a barrel.

That target will serve as a reference point for traders when world oil demand starts to emerge from the current recessionary slump.

But for now, the oil market is focused on whether OPEC can prevent prices falling further by avoiding the sort of divisions that have undermined its response to falling prices during previous economic downturns.

Delegates identified Iran and Venezuela, perennial price hawks who have urged quicker cuts, as particular sources of concern on quota compliance. Venezuela denied the charge. Iran made no comment.

But consultants Petrologistics estimated last week that, based on shipping data, Iran's production would fall by 80,000 barrels a day this month, much less than the 199,000 barrels a day it is due to cut.