OPEC may need to cut output in Sept: Algeria

By Svetlana Kovalyova

MILAN (Reuters) - OPEC will need to cut output when it next meets in September if there is not enough demand for its oil, Algeria's energy and mines minister said on Monday.

"I think OPEC's objective is to satisfy demand in the world market and to meet any real demand," Chakib Khelil told reporters in Milan on the sidelines of a conference.

"It will cut only if demand is destroyed or it disappears in the market. If we see demand does not exist in the market in September, we will have to cut."

The Organization of the Petroleum Exporting Countries, which next meets on September 9 to reconsider policy, has said it will reduce production by 4.2 million barrels per day from last September's output.

At its most disciplined, OPEC delivered an estimated 80 percent of its promised cuts early this year. Compliance has since fallen to about 70 percent, but Khelil said it was good.

"Compared to historical compliance we are OK, we are in a good shape," he said.

Khelil said he expected stocks would fall in 2010 to 52 days of future demand, a level OPEC officials consider comfortable.

Crude oil and gasoline inventories have mounted, while supply has been subdued even at the height of the U.S. driving season, traditionally a time of peak consumption.

In developed countries, oil stocks reached the equivalent of 62.5 days of forward cover at the end of May, according to the International Energy Agency.

OIL PRICES

For now, he said the oil market was not reflecting fundamentals of supply and demand and a rally that took it to a peak above $73 in late June had instead been driven by expectations the economy would strengthen.

U.S. futures were trading at around $64 a barrel on Monday.

For the rest of the year, Khelil predicted oil prices would trade in a range of $65 to $70, but could possibly rise to $90 next year once excess supplies had disappeared from the market.

"We know prices are going to reach their equilibrium level with the cut in the stocks," Khelil said.

"Once they reach their 52 days probably some time during next year, once the economy picks up, we are going to see prices converge to the equilibrium price of $90."