Opec expected to cut oil output

Petroleum exporters mull largest ever supply cut, amid global economic slump.

OPEC president - Chakib Khelil
Chakib Khelil said that King Abdullah's target of$75 a barrel was a 'fair price' for oil [AFP]

He said that the $75 a barrel price target set by King Abdullah, Saudi Arabia’s monarch, was a “fair price”.

Opec ministers will make their decision when they meet in Algeria on Wednesday.

‘Difficult and costly’

Abdullah bin Hamad al-Attiyah, Qatar’s oil and energy minister and deputy prime minister, told Al Jazeera that Opec’s aim is to balance the demand with the supply.

“If you offer oil and no one is buying it what should you do with it? The oil industry is very difficult and very costly,” he said.

He put the blame for high oil prices at the pump on mainly Western governments, saying they were not passing on the lower prices to consumers.

“Oil is still very cheap now … but consumers in Europe and other parts of the world are still paying high prices of oil in gas stations because of the tax. Tax in Europe and in other parts of the world is over 85 per cent.”

Rising prices

US light crude for January delivery rose 34 cents to $44.83 a barrel at 0920 GMT on Tuesday, after falling as low as $44.10 the previous day.

London Brent crude was up 36 cents at $44.96 at the same time.

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Oil cut is ‘necessary’

Oil fell to a four-year low of $40.50 in December, more than a $100 slide from its July all-time high above $147 a barrel, as global economic turmoil depresses demand in large consumer nations such as the US and Japan.

On Monday, China, long a major engine for rising crude prices, joined ranks with those top consumers – its oil demand fell last month for the first time in nearly three years.

Opec has cut output twice since September without halting the decline in oil prices which has slashed revenues for the group’s members and raised fears of a future supply crunch as investors pull money from costly exploration and production projects.

Market worries

“The first cut of 1.5m barrels did not have any impact on the declining oil price partly because some members – especially Nigeria and Iran – didn’t abide by the cuts,” Mamdouh Salameh, an oil analyst based in London, told Al Jazeera.

He also warned that a production cut could have severe knock-on effects for Opec.

“If they keep cutting their production at a time when it’s not having any effect on the declining oil price they will have to fight in the future to get their market share because they will be losing it to the non-Opec producers.”

Russia, the world’s top non-Opec producer, is sending its highest ranking delegation ever to the meeting, including the heads of its five top oil companies.

Gholamhossein Nozari, Iran’s oil minister, said market stability could be restored if Opec decides to cut output by between 1.5 and two million barrels per day, the official IRNA news agency reported.

The US Federal Reserve could also affect the market. It is expected to drop interest rates close to zero on Tuesday in a bid to stall the slowdown in the world’s largest economy.

Source: Al Jazeera, News Agencies