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SMH: OPEC will try to stem slump in oil prices
 
OPEC, the supplier of more than 40 per cent of the world's oil, plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s sends crude toward $US50 a barrel.

Option contracts to sell oil at $US50 by December have soared in the past two weeks on the New York Mercantile Exchange. Goldman Sachs and Merrill Lynch analysts say crude prices, which fell more than 50 per cent from a record high in July to a 14-month low last week, may drop another 44 per cent should the world economy slip into recession.

The Organisation of Petroleum Exporting Countries, which meets on Friday in Vienna, three weeks earlier than planned, is facing the weakest growth in demand since 1993, just as new fields come on line from Angola to the Gulf of Mexico. Members may cut daily output by as much as 2 million barrels, said the OPEC president, Chakib Khelil.

"OPEC is going to try to prevent some of the price decline," said Francisco Blanch, head of global commodities research at Merrill in London. "It's going to be very difficult to stem a price fall."

Oil prices rose in Asian trade yesterday to $US73 a barrel amid the growing signs that OPEC will announce production cuts at the special meeting, dealers said.

Even at today's prices, Venezuela and Iran, two of the organisation's 13 members, may struggle to balance budgets because they rely on energy sales for more than half of their revenue, according to estimates compiled by the US Central Intelligence Agency.

"Some countries like Venezuela and Iran need prices above $US80 a barrel," said Leo Drollas, deputy director of the Centre for Global Energy Studies, a London consulting company.

"The Saudis have a bottom price of about $US65 a barrel, but they might go ahead with a cut to keep solidarity within OPEC."

Gross domestic product in the six-member Gulf Co-operation Council of Saudi Arabia, United Arab Emirates, Kuwait, Oman, Qatar and Bahrain would shrink 25 per cent if oil averaged $US50 next year, ING Bank estimates.

Ministers from Algeria, Libya, Iran and Venezuela have already called for a reduction from the current quota of 28.8 million barrels a day. Mr Khelil, also Algeria's oil minister, said there was consensus for a cut but no agreement on its size. It may be necessary to make the cuts in two stages to ensure price stability, he told Algerian state television.

The world's industrialised economies will expand next year at the slowest pace since 1982, according to the International Monetary Fund.

Meanwhile, world oil capacity will rise 1.45 million barrels a day next year, twice the rate of growth in demand, according to the International Energy Agency.

Source