Opec needs big supply cut to stem oil price slide

LONDON: Opec needs to make a large cut in supplies at a meeting next week, its third reduction since September, to prevent further falls in oil prices as world demand slumps due to slowing economies.

The group should cut output by at least one million barrels per day (bpd) at the Dec 17 meeting, Opec delegates and analysts said. Some suggest the minimum should be two million bpd, a cut of 7.3%t from Opec’s collective output target of 27.3 million bpd.

“The whole world economy is in turmoil,” Shokri Ghanem, Libya’s top oil official, told Reuters. “We think this needs substantial action.”

That may prove a challenge given the signs of a lack of unity among Opec members that emerged at a meeting last month which put off taking any decision on supply until December.

Since the Cairo meeting, oil has hit a four year low near US$40 a barrel.

Apart from Libya, Iran and Venezuela have also called for the Organisation of the Petroleum Exporting Countries to cut output further. But Saudi Arabia, Opec’s top exporter, has yet to publicly back another reduction.

Opec has implemented two-thirds of a Nov 1 agreement to cut output by 1.5 million bpd, according to Reuters estimates. At a meeting in September, it decided to lower supplies by about 500,000 bpd.

But analysts and traders say Opec needs to do more than improve compliance.

Nauman Barakat of Macquarie Futures USA said a further cut of more than two million bpd was needed.

Others expected at least one million bpd.

“To do nothing is not an option, that’s what we saw last time,” said Rob Laughlin, oil analyst at MF Global. – Reuters

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