VIENNA (Reuters) - A deep price slump, depleted oil demand and swollen stocks have heaped pressure on OPEC ministers to cut supplies at their meeting this week, but they also need to prevent further damage to a battered world economy.
The Organization of the Petroleum Exporting Countries gathers on Friday in Vienna at an emergency session originally set for November 18.
It announced last week when oil fell below $70 a barrel it would bring the meeting forward. U.S. crude on Wednesday dropped further to below $67, its weakest since June last year.
“The question of reduction has to be discussed at the conference,” OPEC’s President Chakib Khelil of Algeria said on his arrival in Vienna.
He also said OPEC should avoid harming countries hurt by the financial crisis and those would include some within the producer group unless it acted decisively enough.
“If the decision goes too far, it will affect countries who are already affected by economic crisis,” he said. “If it doesn’t go too far, then it will affect the producers who might end up in the category of people affected by financial crisis.”
So far, estimates of how much OPEC should cut to prevent a big build up in stocks have ranged from very little to several million barrels per day (bpd), although that could be in stages.
Delegates on Wednesday told Reuters at least a million bpd needed to be taken away.
“A cut of at least a million barrels per day is needed in my view,” an OPEC delegate told Reuters. “Anything less would mean more supply than demand.” The source did not specify when any cut should take effect.
In the short term, analysts said even a sizeable cut might not halt the momentum that has pushed prices down by more than 50 percent from a record of $147.27 struck on July 11.
Adding to OPEC’s problems, the group could have difficulty enforcing a reduction as those members who need all the revenue they can get have been reluctant to limit exports when the price is falling.
OPEC’s lack of discipline helped to drive oil to below $10 a barrel during the Asian economic crisis in the late 1990s.
As a further complication, its various members have very different price requirements.
At one end of the scale, Venezuela and Iran are estimated by some to need toward $100 a barrel to balance their books.
At the other, leading producer Saudi Arabia, the only OPEC member pumping significantly above its official output target, is thought to need less than $60.
Nigerian Oil Minister Odein Ajumogobia said on Wednesday his country would be comfortable with oil at $80 a barrel but that it did not want to cut its own production to defend that price.
“We know what Nigeria’s interests are. We want to be able to meet our budgetary requirements for 2009,” Ajumogobia told reporters in Abuja.
In the longer term, just as too high a price eroded demand, too low a price could shrink supplies, whatever OPEC agrees, because oil projects become uneconomic.
With prices below $90, the world would face “a serious supply side crunch as little as two years away,” said Barclays Capital.
“We would then tend to disagree with the view that a falling oil price is the main bright spot (for the economy),” the bank said in a note.
Already, global oil supplies beyond OPEC are flagging.
Output from leading non-OPEC producer Russia, is expected this year to register its first annual decline in a decade.
Although Russia is not expected to join OPEC and will not attend Friday’s meeting even as an observer, it sent its most senior delegation yet to the group’s September meeting.
Saudi Arabia has so far not made any public comment on what action OPEC needs to take.
Additional reporting by Michael Georgy, Peg Mackey in Vienna and Felix Onuah in Abuja; writing by Barbara Lewis, editing by William Hardy