OPEC Wants 'Huge' Oil Production Cuts

Iran and Venezuela on Thursday urged OPEC to quickly slash output and stem a steep slide in prices that has left crude at its cheapest in 15 months.

VIENNA, Austria (AP) -- Iran and Venezuela on Thursday urged OPEC to quickly slash output and stem a steep slide in prices that has left crude at its cheapest in 15 months -- and some member countries scrambling to balance their books.

But OPEC's power to raise prices by cutting supply may be fading amid a global economic crisis that has evaporated demand for oil.

The latest weekly report from the U.S. Department of Energy shows that demand has fallen in 38 of the past 42 weeks. U.S. demand is down nearly 10 percent during the past four weeks year on year. The U.S. still consumes one out of every four barrels of oil produced.

"This is not a supply issue," said trader and analyst Stephen Schork. "OPEC can affect supply but they can't touch the demand side, which right now is a house of cards."

Iranian oil minister Gholam Hossein Nozari told reporters, on the eve of an emergency OPEC meeting to address evaporating prices, that a cut of "two million (barrels per day) will stabilize" the market. And Rafael D. Ramirez, his Venezuelan counterpart, also left little doubt on where he stood.

"We have to take some action now, now," said Ramirez, telling reporters that the 13 OPEC oil ministers meeting Friday will reach "consensus to take a very, very, very fast action."

Both he and Iraq's oil minister said their nations may be forced to rethink or cut spending next year.

Other oil ministers of the Organization of Petroleum Exporting Countries also said output cuts had to be on the table during their meeting Friday -- but were well aware that if production is tightened too much, the resulting price spikes could knock a wobbling global economy even further out of kilter.

Their comments reflected both OPEC alarm over crude's fast fall and concern about how to remedy the situation without bringing ruin upon themselves. In the past, sizable cuts in OPEC production have led to significant jumps in prices. But with demand already falling due to the economic downturn, even a large reduction may fail to prop up the market.

The emergency meeting was initially scheduled for Nov. 18, but that was abruptly rescheduled for Friday as oil prices continued to fall away.

"They're in a bit of panic," said Schork. "They underestimated what happens when the bubble implodes."

The fall in crude could hit Iran and Venezuela first. Both nations have a slimmer margin of profit than other OPEC members because their oil is heavier and more sulfurous, meaning it sells for less than benchmark crude. They were setting the price yardstick relatively high -- Iran was looking for a price of $100 a barrel, and Venezuela at $80-90.

But other OPEC nations are also hurting. Libyan oil chief Chief Shokri Ghanem told reporters that OPEC needed to make a "huge cut."

"Two million is good," he said.

Iraqi Oil Minister Hussain Al-Shahristani said that crude priced below $80 a barrel would force his country to rethink its spending next year.

"Our budget for 2009 is based on $80 per barrel and so any fall beyond that is going to cause a strain on our budget," he said. Ramirez of Venezuela also said that production at prices below that level made little economic sense.

Prices that have slid more than 50 percent from record highs of around $147 a barrel in July, and market swings have become increasingly erratic.

Benchmark crude futures rose $1.49 Thursday to $68.24 on the New York Mercantile Exchange, but that is still nearly $40 below what oil fetched just 30 days ago. On Wednesday, prices fell $5.43 to settle at $66.75 a barrel, their lowest close since June 13, 2007.

OPEC heavyweight Saudi Arabia, which can produce for substantially less, traditionally acts as a brake to demands of deep production cuts. But considering the magnitude of oil price erosion, OPEC's top producer might bow to pressure from OPEC price hawks.

The Saudis remained close-mouthed ahead of Friday's meeting.

"The prices are determined by the market," said Saudi Oil Minister Ali Naimi. Pressed on the probability of a cut, he told reporters: "Tomorrow we will tell you."

OPEC President Chakib Khelil of Algeria also said that while output reduction "has to be discussed," any decision Friday had to avoid aggravating economic turmoil.

Khelil said radical production cuts could further damage nations ensnared in the global economic crisis, but that moderate cuts could leave OPEC nations sharing their fate.

The intentions of Russia, second only to the Saudis in oil production, remain unknown.

OPEC Secretary-General Abdullah al-Badri said before a meeting with Russian President Dmitry Medvedev on Wednesday that he would not ask Russia for oil production cuts as global prices fall, and analysts said Russia was unlikely to agree to coordinated production cuts, given that it already is battling with falling output as West Siberian oil fields mature.

But analysts at JBC Energy in Vienna spoke Thursday of "behind the scenes negotiations" between Moscow and OPEC, adding that a "joint cut is still possible." And Abdallah bin Hamad Al Attiyah of Qatar appealed to Moscow and other non-OPEC producers for support

OPEC could make a large-scale output cut in two stages as a compromise -- one on Friday and a second if necessary when the group meets Dec. 17 in Oran, Algeria.

Touching on that possibility, Al-Shahristani of Iraq said OPEC ministers will "see what the demand is going to be by December to consider any other further cuts."

Associated Press writers Veronika Oleksyn and Angela Woebking in Vienna, Tarek Eltablawy in Cairo and Diana Elias in Kuwait contributed to this report.

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