OPEC ministers said on Friday they were likely to defer a decision on their third output cut until next month, despite an accelerating slump in fuel demand that has slashed the price of oil by two-thirds since July.
Caught off guard by a severe decline in energy consumption in the West, the Organization of the Petroleum Exporting Countries is wary of being seen to panic after two previous rounds of cuts failed to shore up prices.
Ministers arriving for Saturday's meeting said they were likely to defer a decision on a new round of cuts until they meet again in Algeria in December, when they can better judge if all members have met previous commitments.
"It's a consultative meeting. We will prepare some more information and make a final decision maybe in Algeria," said Iranian Oil Minister Gholamhossein Nozari.
Prior to the meeting Venezuela, Iran and Iraq were calling for more aggressive restraints but by Friday only Iraq wanted an immediate cut.
"We support a production cut…we support a reduction now," said Iraqi Oil Minister Hussain Shahristani.
Powerless so far to prop up prices, delegates say OPEC is worried that another quick cut could undermine its credibility among traders focused on the spread of the financial crisis into the real economy and its impact on oil demand and inventories.
U.S. crude traded at around $54 a barrel on Friday having set a record $147-a-barrel high in the summer.
"Things have unraveled incredibly quickly on a macro-economic level and this has directly translated into lower oil demand," said analyst Roger Diwan of PFC Energy.
"OPEC appears to be serious about maintaining market balance but demand is declining, there is very little appetite for their oil and that is reflected in increasing storage."
COMPLIANCE
Ministers had agreed to slice a combined 2 million barrels daily (bpd) in the past two months, 7 pct of their output, but can't accurately judge how much they've removed from the market until early December.
Delegates say early signs are that compliance with existing curbs appears to be reasonably high, not least because refinery appetite in the West has fallen so sharply.
Data this week from the United States showed the year-on-year decline in demand in the world's biggest fuel user accelerating to nearly 13 percent in September, a fall of just over 2.6 million bpd.
OPEC's more hawkish members may point to that as evidence that the group has failed to move quickly enough to prevent a build in stocks that could knock prices lower still.
"The problem for OPEC is that demand erosion suddenly seems to have escalated to a new level," said David Hufton at brokers PVM.
"Emerging markets have to date prevented global demand turning negative but they are no longer doing what it says on the tin. The lifeboat for oil demand, as well as the mother ship represented by developed economies, has been holed."
World oil demand is set to shrink this year for the first time since the early 1980s, when prices surged after the 1979 Iranian revolution, according to a Reuters poll.[ID:nLQ285707]
"In our industry sometimes we can be sick but will never die," said Qatari Oil Minister Abdullah al-Attiyah.
"We've seen it for the last 20 years — up and down — it's normal in this business, it's a cycle and we have to live with it. But we will come back as usual."
By previous OPEC standards the cuts agreed so far are modest. During the last global economic downturn in 2001, it cut output by 5 million bpd in four stages, a 19 percent reduction in cartel supply. [ID:nLO398108]
The last round of 2001 cuts saw OPEC recruit cooperation from non-OPEC producers including Mexico and Russia, and some in OPEC are now asking Russia to consider helping out again.
For a graphic on OECD commercial oil inventories see https://customers.reuters.com/d/graphics/US_OILSUP1108.gif
