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By Samuel R. Avro on Nov 26, 2008 with no responses

OPEC Likely to Debate, Not Decide Another Supply Cut

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OPEC ministers will debate a deep cut in oil supply when they meet this weekend in Cairo for urgent talks aimed at arresting a downward price spiral that sucked oil below $50 a barrel.

They have downplayed the prospect of any decision until a policy-setting meeting in Algeria on Dec.17, but OPEC needs to send a strong signal of its intention to remove more supply or the risk is oil prices will hurtle lower still.

U.S. crude has recovered slightly from a low of $48.25 hit last week, its weakest level since May 2005.

Several oil ministers have said at least another million barrels of daily supply needs to go given the threat low prices pose to state budgets.

“We’ll need to convince the market that OPEC will cut — but in Algeria,” said an OPEC delegate, who requested anonymity.

“Prices are still falling and $50 is too low. This is the problem.”

Since a record of $147.27 hit in July, the oil market has dived by nearly $100 as the worst economic slowdown since World War Two has eroded fuel demand and convinced many in the Organization of the Petroleum Exporting Countries price weakness could be sustained.

Top oil exporter Saudi Arabia’s finance minister said on Tuesday turmoil in the oil and financial markets could last for another year.

The kingdom, OPEC’s most influential member, has yet to comment on oil production policy.

But OPEC President Chakib Khelil and Kuwait, Iran and Venezuela have said OPEC could cut supply further in the coming weeks — the latter two producers suggesting a reduction be made in Cairo.

“I think if we had a meeting today, 1 million is not going to be enough,” Khelil, also Algeria’s energy minister, told reporters on Monday.

But he also said the group would probably not have enough information on the impact of cuts already made until December, meaning a decision in Cairo, where talks are only consultative and informal, would be premature.

“OPEC wants to make an informed decision — not a hasty cut,” said a senior Western oil executive.

“They don’t want to look as if they’re panicking.”

Article continues… CNBC