Slower demand, an economic downturn and cheaper oil could convince OPEC it needs to trim supply unofficially, but the producer group is expected to leave public output targets unchanged when it meets next week. When OPEC ministers meet next week, they will face a dilemma over oil prices - should they decrease production to boost the price or stay the course? Prices have plunged from a peak of more than $147 a barrel in July. At the same time, demand in top oil consumer the United States fell at the fastest rate since 1982 in the first half of this year and traditional price hawks Iran and Venezuela have raised the prospect of reining in over-supply. Given the potential for oil stocks to build, the Organization of the Petroleum Exporting Countries (OPEC) will need to cut output at some point this year to prevent a further price fall, said David Kirsch of Washington-based consultancy PFC Energy. “The question is not whether to cut, but when,” said Kirsch. “But ... do you want to be taking oil off the market when you are heading into essentially peak demand in the fourth quarter?” Consensus was building within OPEC, supplier of more than a third of the world's oil, on the need to reduce output, he said. But with the price still above $100 a barrel, OPEC could be reluctant to risk the political backlash of making a public cut at its meeting late on Tuesday in Vienna. “This will be a quick meeting, of that I am sure,” said one OPEC insider on condition of anonymity. “The most likely outcome will be to roll over formal output quotas.” The clamor for more oil from consumers has abated as the price has fallen, but record fuel costs triggered protests worldwide earlier this year and oil has been one of the top issues in the US election campaign. Soaring prices meant OPEC members earned almost as much money from oil exports in the first seven months of this year as in the whole of 2007, according to US government data. “It would be unseemly of OPEC right now to officially cut production,” said Adam Sieminski, chief energy economist at Deutsche Bank. “But a quiet understanding to trim back production might be the order of the day.” Informal rather than formal changes provide a means to test how much oil the market needs and how high a price consumers can stand. OPEC meets again in Algeria in December, by which point the group might feel able to make a public output cut, sending a more decisive signal to the market. “We can take this step later if we consider it necessary,” said Iran's OPEC Governor Mohammad Ali Khatibi this week. “There are so many factors that are uncertain right now, we may need to do this in December.” He said OPEC might need to cut supplies by as much as 1.5 million bpd by early next year and could make a start at Tuesday's meeting by reining in supply above targets. Together with Venezuela, Iran has implied it wants oil prices of no less than $100 a barrel. Both have big-spending populist governments that need high oil revenues, and were the first to raise the alarm as the price fell. The producers are in uncharted waters. Prices have risen more than five-fold in the past six years, and a year ago the idea of a cut at these prices would have been unthinkable. At a meeting in Vienna in September 2007, when oil prices were below $80 a barrel, OPEC agreed a modest output increase of 500,000 bpd. It has since kept its production targets steady. In Tripoli, the oil market is starting to suffer from oversupply, the Libyan National Oil Corporation chairman said on Friday, days before a key OPEC meeting on crude output levels. “The market is well served and has even started to suffer from oversupply,” said Shukri Ghanem, who also acts as the country's oil minister, adding that OPEC aimed to balance supply and demand. “Prices have lowered and the supply is exceeding demand. The role of OPEC is to maintain the balance,” he said. “But we are not going to make decisions before studying the market situation,” the economic committee report and the opinions of member countries, he added. - Agencies Oil prices sank below $106 a barrel Friday as a jump in the US unemployment rate signaled to traders that Americans might keep paring back their energy use to save money. Light, sweet crude for October delivery fell $1.69 to $106.20 a barrel in midday trading on New York Mercantile Exchange, after falling to $105.13, its lowest trading level since early April.
