VIENNA OPEC's oil price hawks looked set on Tuesday to accept a new group output target that legitimizes a big increase in supply over the last six months from rival producers Saudi Arabia and its Gulf allies.
A deal expected at a Wednesday meeting should restore some credibility to the Organization of the Petroleum Exporting Countries after talks fell apart in June and left the cartel without its normal self-imposed output constraints.
Leading producer Saudi Arabia has forced price hawks Venezuela, Iran and Algeria to recognize a large rise in Saudi supply since June, compensating for Libyan losses, that has anchored oil prices near $110 a barrel.
In a show of strength, Saudi Oil Minister Ali al-Naimi announced on his arrival in Vienna that Saudi output had topped 10 million barrels daily, its highest in decades.
"We want an OPEC with credibility. Saudi Arabia can continue increasing production but we would rather have an agreement," said an OPEC delegate.
The expected agreement would put a 30-million barrel-a-day cap on output for all 12 OPEC members for the first half of the year, keeping production near 3-year highs. Ministers will not try to set individual national quotas.
"There's a general agreement for around 30 million bpd for the first half," said a senior OPEC delegate.
Oil ministers from the two biggest producers and main protagonists at June's bad-tempered meeting, Saudi Arabia and Iran, met face to face on Tuesday. "We had a friendly chat," said Iranian Oil Minister Rostam Qasemi after the meeting with Naimi. "Everything is OK."
The price hawks, all of whom already pump at full capacity, decided not to argue for a target below 30 million bpd.
But they are seeking a commitment from Saudi and its fellow Gulf Arab producers Kuwait and the United Arab Emirates to make room for the restoration of Libya's supply so that collective production does not balloon over the course of 2012.
"We think there is enough oil in the market and that as Libyan oil production recovers the countries which supplied additional barrels have to reduce their production again below current levels," said Venezuelan Oil Minister Rafael Ramirez.
"It's not necessary to move the production," he said, in reference to current supplies.
OIL PRICE IN CHECK
Extra oil from the Gulf nations since June has helped keep oil prices in check despite the loss of Libyan output and unexpected outages scattered across several non-OPEC producers.
Brent crude traded near $109 a barrel on Tuesday, off a year-high of $127.
Price hawks want to keep oil above $100.
"We are very worried about the economic situation. We are very worried about the growth estimates for next year, particularly in the euro zone and the North American economy," said Ramirez.
"$100 is now the minimum acceptable price," said a non-Gulf delegate.
The Gulf nations, concerned about the impact of high prices on global growth, would prefer a lower price. The UAE said recently that $80-$100 would be reasonable.
"The market is balanced, there is no shortage and there is no oversupply," said Kuwait Oil Minister Mohammad al-Busairi.
"We hope ... there will be an agreement that protects economic growth."
OPEC experts on Monday recommended that the group fix collective production at 30 million barrels daily for the first half of 2012.
That volume would meet demand and leave enough over to rebuild lean stocks by 650,000 bpd over the period, OPEC forecasts.
Graphics: Demand for OPEC crude: link.reuters.com/zyk55s
OECD inventories fall: link.reuters.com/cyk55s
OPEC export revenues: link.reuters.com/wyk55s
OPEC market share link.reuters.com/xem55s
(Additional reporting Alex Lawler, Humeyra Pamuk, Amena Bakr, writing Richard Mably, editing by William Hardy)