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OPEC expected to cut output
Staff and wires
LONDON, England -- OPEC producers meeting in Vienna on Thursday are likely to agree to cut oil supplies, according to major producer Saudi Arabia. That decision will have an impact on Asian economies, most of which depend heavily on oil imported from the Middle East. Oil accounts for 52 percent of total energy supply for Japan, the world's No. 2 economy, and 86 percent of the 5 million barrels of oil it consumes every day comes from the Middle East. China is a significant producer with 3.43 million barrels a day (bpd) in October, but all of that is used domestically, plus it imports another 1.4 million bpd. It has been seeking to expand its access to energy supplies this year, signing long-term gas contracts with Australia and Indonesia, and committing to gas pipelines. (Full story) Malaysia and Indonesia are the only net oil exporters in Asia. Saudi Oil Minister Ali al-Naimi told reporters in London earlier this week that the Organization of Petroleum Exporting Countries (OPEC) needs to restore output discipline by raising its official output ceiling and tightening supply. He is advocating a lift in the current OPEC ceiling of 21.7 million bpd by 1 million to 1.5 million bpd, and a simultaneous cutting of output -- which touched 24.5 million bpd in October -- by 1.5 million to 2 million bpd. Over-supply or "leakage" in recent months has eroded OPEC's credibility and made the existing output limit irrelevant. Weak economic growth is also having an impact on oil demand. Demand growingHowever, the International Energy Agency says that despite the slow pace of economic recovery, it expects oil demand growth to gain momentum in the December quarter, boosted in part by colder temperatures in the northern hemisphere and strong automotive fuel demand in OECD countries. Naimi arrived in Vienna late Tuesday. Other OPEC oil ministers are due to arrive Wednesday, ahead of Thursday's formal meeting when the focus will be on supporting oil prices near $25 a barrel. IPE Brent crude has averaged $25.53 a barrel so far this month and closed Tuesday at $26.03, up 61 cents. "Now there is a need to cut,'' Naimi told reporters in London on Tuesday, according to Reuters news agency. "Most also agree the need to raise the [formal] ceiling.'' OPEC's 11 members -- Saudi Arabia, Iran, Iraq, UAE, Kuwait, Qatar, Nigeria, Libya, Algeria, Venezuela and Indonesia -- are more worried about a possible glut next year than the threat of a price spike if the U.S. launches an assault on Iraq. Venezuela strikeAnother factor oil ministers will consider on Thursday is a strike in Venezuela which has brought exports from OPEC's third largest supplier close to a standstill. Venezuela's oil minister Rafael Ramirez will not be attending the meeting because of the turmoil at home, now entering its 10th day. Naimi said if necessary, OPEC could fill the gap in exports caused by the Venezuela situation. Saudi Arabia already has public support from Iran -- OPEC's second-largest producer -- for the idea of raising quotas and cutting actual output. Naimi said a final decision will depend on consensus among ministers and supply data presented to them at Thursday's meeting. Ministers will not try to address demands from Algeria and Nigeria for a larger share of the group's overall production target.
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