March 13 (Bloomberg) -- OPEC will probably opt for a combination of a production cut and greater compliance at this weekend’s meeting in Vienna, Venezuela’s oil minister said, as the group predicted demand will extend its slide.
“We have to insist on higher compliance of the cuts, which we believe has been good, but needs to be completed,” Rafael Ramirez said in an interview as he arrived for the March 15 meeting. “We have to look at the fundamentals of the market and the macro economic situation. It is very complicated.”
The Organization of Petroleum Exporting Countries will review output against a backdrop of an economic slump that’s kept oil below $50. Members are still implementing 4.2 million barrels a day of reductions agreed on last year in an attempt to support prices.
“There is a risk of over-tightening and the last thing the global economy needs is a spike in oil prices,” Francisco Blanch, head of global commodity research at Merrill Lynch & Co., said in a Bloomberg Television interview. “OPEC should not think about cutting more until they meet their quotas.”
Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah said “all options are on the table” at the meeting.
“We don’t want to hurt the international economy, but at the same we don’t won’t to hurt ourselves,” he said in an interview at Vienna airport today. “It is a very difficult equation. It is still undecided.”
Crude oil futures traded at $46.23 a barrel in New York today. Prices have risen 3.7 percent this year.
Demand Forecasts
The International Energy Agency and OPEC cut their 2009 forecasts for oil demand for a seventh month today and reduced supply estimates as the global economic slump saps consumption as well as investment in new fields.
Both organizations see demand slumping by more than 1 million barrels a day this year. The Paris-based IEA, adviser to 28 nations, reduced its forecast to 84.4 million barrels a day, a decline of 1.25 million barrels from 2008. OPEC’s estimate dropped to 84.6 million barrels, down 1.01 million barrels.
OPEC implemented about 79 percent of planned output cuts amounting to a record 4.2 million barrels a day to stem falling prices, according to the group’s monthly report.
Oil inventories are “above average” and Venezuela is seeking a price floor of $70 a barrel, Ramirez said. Venezuela has cut production by more than 300,000 barrels a day, he said.
Analyst Survey
In a Bloomberg survey, 31 of 41 analysts said OPEC will limit output for the fourth time next week. Of those, 13 expect a reduction of 500,000 to 1 million barrels a day, 12 say 1 million barrels and two estimated 1.5 million. The rest declined to provide an estimate. Ten of the 41 analysts anticipated no change. The analysts were surveyed on March 3 and March 4.
Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich, said a compromise could be a relatively small cut of 500,000 barrels a day, “otherwise, there will be a negative market reaction.”
Algerian Energy Minister Chakib Khelil said two days ago in Algiers that he thought OPEC will likely reduce production, saying “the market expects a reduction and we have to reduce otherwise prices will fall.”
To contact the reporter on this story: Fred Pals in Vienna at fpals@bloomberg.net
Last Updated: March 13, 2009 14:07 EDT
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