Opec poised for biggest cut in a decade

London: Opec, the producer of 42 per cent of the world's oil, may make the biggest supply cut in a decade to halt the plunge in crude prices as demand drops for the first time since 1983.

The Organisation of Petroleum Exporting Countries is set to lower output by at least 2 million barrels a day, or 7.3 per cent, when it meets tomorrow, according to 18 of 33 analysts surveyed by Bloomberg.

While Saudi Arabia's King Abdullah said last month that his country needs oil priced at $75 (Dh275.5) a barrel to spur development, Goldman Sachs Group Incorporated predicted crude would slide to $30 from $46.28 yesterday.

Oil's $100 a barrel collapse since July ended a windfall that quadrupled Opec export revenue in five years, instead creating government budget shortfalls. Ecuador, a member of the group, said last week it will default on foreign debt. The UAE, Kuwait and Qatar need crude above $55 to balance their current accounts and fiscal spending, Citigroup Incorporated estimated.

"There is a real danger of oil going down to $30 a barrel unless Opec acts boldly and decisively," said David Hufton, managing director of the London-based PVM Oil Associates, the world's largest broker of over-the-counter crude trading between banks, hedge funds and oil companies.

Prices tumbled from a record $147.27 on the New York Mercantile Exchange in July to a four-year low of $40.50 just five months later.

Crude for January delivery rose as much as $1.13, or 2.4 per cent, to $47.41 a barrel in after-hours electronic trading on the New York bourse.

Opec president Chakib Khelil said on December 11 that ministers had reached a consensus that a "severe" cut is needed at the meeting this week in Oran, Algeria. Qatari minister Abdullah Bin Hamad Al Attiyah, Venezuela's Rafael Ramirez and Libya's Shokri Ganem also said they are prepared to reduce supplies.

The group agreed in October to reduce production by 1.5 million barrels a day, starting November 1.

"With oil having dropped to sub-$50, the Algeria meeting puts them under pressure to cut again," said Mike Rothman, oil research head at International Strategy & Investment Group.

Bubble burst

Opec's struggle to revive prices follows six years of gains as global growth accelerated, led by China.

Rising prices led investors and pension funds to pour more than $200 billion into commodities, seeking greater returns than those offered from stocks and bonds.

The resulting bubble in oil, grains and metals burst in July, as the collapse in the US subprime-mortgage market saddled financial companies with almost $1 trillion of losses and writedowns and led to the failure of Lehman Brothers.

As investors fled commodity markets, outstanding oil futures contracts, called open interest, tumbled 23 per cent in New York to 1.16 million.

Oil could fall below $25 next year as the recession limits demand, Merrill Lynch commodity strategist Francisco Blanch said. Benjamin Dell, oil analyst at New York-based Sanford C. Bernstein and Company, said it may take a year for prices to rebound.