Opec may need to cut oil supplies by as much as 1.5 million barrels per day (bpd), or nearly 5 percent, to balance global markets by early next year, Iran's Opec governor said on Tuesday. The Organisation of the Petroleum Exporting Countries should consider a two-step plan to cut supplies at its meeting next week in Vienna, the official from price hawk Iran said.
"The current market is not balanced, it is oversupplied," Iran's Mohammad Ali Khatibi told Reuters by telephone. "Oversupply cannot continue for a long period. It will definitely have an impact on the price and on investments in the oil industry."
US oil was trading under $108 a barrel on Tuesday after touching its lowest level since April. The price has fallen nearly $40 from its July peak on concern that a slower global economy will need less oil.
Iran's Oil Minister Gholamhossein Nozari told Iran's IRNA news agency on Tuesday that Opec, supplier of more than a third of the world's oil, should discuss oversupply at its September 9 meet. He also indicated that Iran wanted the producer group to defend oil from falling below $100 a barrel.
The president of fellow Opec hawk Venezuela has said $100 a barrel is a fair price for oil. Top oil exporter and Opec's most influential member Saudi Arabia has yet to say what outcome it would like to see from next week's meeting. But it and other core Gulf producers have shown no public sign of being ruffled by falling oil prices.
The first step in balancing supply and demand would be for members that are pumping above their informal target to cut back to the agreed levels, which would bring output down around 500,000 to 700,000 bpd, Khatibi said.
Saudi Arabia pledged to pump at 9.7 million bpd in July and for as long as necessary to meet demand and help tame what it saw as unacceptably high prices. At that level, the kingdom would be 750,000 bpd above its output target. The second step would be for a formal output cut and could be left until the producer group, supplier of over a third of the world's oil, meets again in Algeria in December, Khatibi added.
"We can take this step later if we consider it necessary," he said. "There are so many factors that are uncertain right now, we may need to do this in December. It is, of course, for the ministers to decide." By then, it should be easier to measure how much the global economic slowdown has hit demand and how much oil producers outside of Opec would pump over winter, he added. That would give Opec a clearer idea of what it needs to supply to match demand, he said.
As things stand, demand for oil from Opec was expected to be around 31 million bpd in the first quarter 2009, compared with current output of around 32.5 million bpd, he said. Demand would slip around 1 million bpd to 30 million bpd in the second quarter but there would be no need for Opec to trim further then. This would allow inventories to grow, he added.
Khatibi said it was difficult to give an ideal oil price, but that $100 a barrel was enough to encourage investors to engage in high cost deep sea or unconventional oil projects. "If high cost projects need a price of around $60-$80 a barrel, then $100 gives investors a profit and incentive on those projects," he said. If oil prices fall below that level, then projects could be put on hold or cancelled and crimp future supplies, he added.