ORAN, Algeria // Saudi Arabia wants Opec to reduce output by another 2 million barrels per day (bpd) at a ministerial conference tomorrow in Algeria to staunch a collapse in prices in the face of the worst demand projections for a quarter of a century. If agreed to at the meeting in Oran, the cut will bring Opec's total reduction this year to 4 million bpd, equivalent to 14 per cent of its peak production.
"Supply is somewhat in excess of demand. Inventories are also higher than normal. Therefore, to bring things in balance, there will be a cut in production of about 2 million barrels," said Ali al Naimi, the Saudi oil minister, on arrival in Oran last night. Analysts said a cut of this magnitude would be Opec's biggest single reduction ever. The UAE Minister of Energy, Mohammed bin Dhaen al Hamli, declined to comment on arrival, but GCC nations traditionally speak with one voice in Opec.
Mr al Naimi said Opec had already cut output by about 1.7 million bpd since the reductions began in August. The expected reduction comes in response to a dramatic contraction in the global appetite for crude, which is expected to fall this year for the first time in a quarter of a century. World demand had fallen by 100,000 bpd on average this year and would fall further next year because of the rapidly decaying economic conditions and the impact of high prices earlier in the year, Opec said in its monthly oil market report issued today.
Prices, which hit a record above US$147 a barrel in July, have slumped by about $100 in five months, far below the comfort zone for the global energy industry. Budgets in some Opec countries are already in deficit, and many of the highest cost producers of oil and alternative energy are operating at a loss. Crude oil futures for January delivery on the New York Mercantile Exchange rose $1.50 today to $46 a barrel.
Russia, which has operating costs that are higher than most Opec nations, has dispatched a delegation to tomorrow's meeting. The Russian president, Dmitri Medvedev, has made forceful statements on the need to work with Opec to reverse the price slide, which has proved caustic for the country's hydrocarbon-dependent economy. On Monday, Chakib Khelil, the Opec president, told reporters in Oran that he was hopeful Russia would join the group in cutting production. "They have already expressed their support - we are hoping for concrete support," he said.
Also on Monday, the chief executive of Lukoil, Vagit Alekperov, told a conference in Moscow that Opec had asked Russia to cut "between 200,000 and 300,000 bpd." King Abdullah of Saudi Arabia, the group's most influential producer, has said $75 a barrel was "a fair price" for crude. Opec expects demand for its own crude, which accounts for about 40 per cent of the world total, will fall sharply this year and next, a worrying sign for Opec producers, most of whom are engaged in multibillion-dollar capacity expansion programmes.
Opec said demand for its own crude would fall by 700,000 bpd this year and 1.4 million bpd next year. "Given negative growth in world oil demand and positive growth in non-Opec supply, the demand for Opec crude is projected to decline sharply in 2009," the report said. Opec predicted that a substantial glut of crude on the world market would stop prices rising until the middle of next year. "The growing imbalance in the oil market over the coming quarters will lead to a much higher overhang in inventories, if the global recession deepens," the report said.
The supply overhang, Opec said, would be "the main focus of discussion" in Oran tomorrow. email@example.com