ORAN, Algeria, (Reuters) – Saudi Arabia, the world’s top oil exporter, gave its full backing on Tuesday for OPEC to make the biggest supply cut ever in its fight against slumping demand and falling prices.
Ali al-Naimi, the kingdom’s oil minister, told Reuters he also expected those outside OPEC to cut up to 600,000 barrels per day (bpd) in concert with the 12-member exporter group’s Wednesday decision.
An overall reduction of 2.6 million bpd would remove about 3 percent of the world’s daily output.
“We know that supply is still somewhat in excess of demand, inventories are also higher than normal,” Naimi told reporters. “Therefore to bring things in balance there will be a cut of about 2 million barrels per day at this meeting.”
The Organization of the Petroleum Exporting Countries’ restraints of two million bpd already in place have failed to counteract a recession that has battered global demand and lopped more than $100 off prices since July.
Oil eased to under $44 a barrel on Tuesday.
Naimi’s colleagues from Venezuela and Iran had already made clear their preference for a substantial cut. “We want a very, very strong decision,” Venezuelan Oil Minister Rafael Ramirez told reporters on his arrival.
Venezuela and Iran are dependent on higher prices to fund ambitious domestic programmes and even Gulf producers need a price of around $50. “Our recent reduction was not enough to change the market’s direction so we need a bigger cut,” an Iranian OPEC delegate told Reuters.
Saudi Arabia, OPEC’s most influential member, has already taken steps to remove excess oil and push prices back towards the $75 level Saudi King Abdullah has identified as “fair”.
Speaking of Riyadh’s oil production, Naimi said: “Let me tell you this — this is Saudi Arabia — since August to November we reduced 1.2 million barrels per day from 9.7 to 8.5.”
Reuters reported last week that Saudi Arabia’s biggest customers would receive less oil in January — implying the kingdom had already factored in another OPEC reduction. Naimi confirmed that. “In preparation for this meeting, yes,” he told Reuters.
“Everybody is suffering. That is why we want two million,” said an OPEC delegate. “But we’re worried about compliance.”
Deep cuts are more difficult to enforce as they require discipline from all OPEC members and lead to accusations behind closed doors of cheating on quotas.
According to independent observers cited in OPEC’s monthly report on Tuesday, the group’s compliance in November to existing cuts was only just over 50 percent.
The economists at OPEC’s Vienna Secretariat also echoed the view of the U.S. government: the world’s thirst for fuel is expected to shrink this year and next, the first time since the 1980s demand will contract for two years running.
A slump in consumption has lifted oil inventories in OECD industrialised nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.
Russia, the biggest non-OPEC exporter, was sending its energy minister and its deputy prime minister to the Oran meeting.
Leading banks have predicted oil could sink to $30 or below early next year, and some in OPEC concede Riyadh’s “fair” $75 may be out of reach at least until the end of next year.
OPEC’s biggest cut by volume so far was in April 1999 when it reduced production by 1.716 million bpd, according to Reuters data.