OPEC poised for another deep cut to halt oil slide

By Barbara Lewis - Analysis

LONDON (Reuters) - Swelling fuel stocks and a more than $90 drop in the oil price has driven OPEC to call another round of urgent talks that could agree a deep supply cut to try to shore up the market.

Since early September, the Organization of the Petroleum Exporting Countries has already agreed to reduce supply by a total of two million barrels per day (bpd).

It could announce a further cut of 1.5 million bpd at talks in Cairo at the end of the month, an OPEC delegate said on Friday.

"OPEC needs to cut more rather than less -- probably in the range of 1.5 million," the delegate told Reuters. "Demand is going down every day along with the price and we don't want a big stock-build."

A reduction of that size would be deeper than the one million bpd many analysts have said is necessary, but OPEC has been monitoring an increase in the number of forward days of stock cover, which is a key indicator for the group.

Market sources have said OPEC has so far removed more than half of the total cuts of 2 million bpd announced at a planned meeting in September and emergency talks in October, but that has failed to halt the price slide.

"The price has put a gun to their head. That's why they're meeting," said Mike Wittner of Societe Generale.

"Going back to last month, they wanted to take things a step at a time, so as not to over-cut, but they really have not got the luxury of time."

In September, oil was still around $100, compared with above $60 during the October meeting and this week's low of less than $55 a barrel -- more than 60 percent below the all-time high of $147.27 struck in July.

OPEC has avoided naming a target price, but some in the group have said privately around $70 a barrel is a level that allows both producer and consumer needs to be met.

ECONOMY IN FOCUS

Instead of focusing on OPEC's determination to reduce supplies, the market's attention has fixed on the impact of the worst economic slowdown since World War Two on fuel demand and the resulting rise in fuel inventories.

At the same time, OPEC has watched the number days of forward cover rise.

In its monthly market report on Thursday, the International Energy Agency, which represents consumer countries, said oil stocks in developed countries equated to 55 days of forward cover at the end of September and could rise to 56, according to preliminary October data.

Figures from the U.S. Energy Information Administration also put September and October forward cover at 56 days.