Opec set to slow oil price slide

OPEC ministers are widely expected to vote for a gradual cutback in oil output over the coming weeks when they meet for one of their most pivotal summits of the year in Cairo tomorrow.

But they are likely to stop short of a formal cut in the cartel's production quota and instead bring output closer in line with existing targets as they bid to stem a significant slide in the oil price.

US crude has slipped to almost $41 a barrel - the lowest for three months and 26% below recent record highs - amid mounting evidence that oil stocks are being replenished across the world.

While US data yesterday showed a slower-than-expected build-up in heating oil stocks, consumption cover within the Organisation for Economic Co-operation and Development (OECD) is creeping up and edging closer to the highest so far this year.

Opec members are concerned that, with production averaging a million barrels a day above the official quota of 27m barrels, prices could plunge in the new year if supplies continue to build.

Kevin Norrish of Barclays Capital said: 'Oil prices are now at the kind of level where Opec will feel compelled to act at its meeting to stem the price slide.'

Despite bullish noises from Saudi Arabia - whose minister Ali Al-Naimi sees no reason to change the status quo - analysts claim demand for Opec oil will fall by about a million barrels a day in the first quarter of 2005. With other members including United Arab Emirates and Venezuela pushing for the official Opec basket price band of between $22 and $28 a barrel to be raised, Al-Naimi may be forced to concede some ground.

Adam Siemenski at Deutsche Bank said: 'A display of group solidarity for quota adherence will eventually be important to get Saudi consent for a deal to raise the price band.'

US crude rose to $55 a barrel two months ago after a buoyant summer fuelled by rampant Chinese demand and a string of terrorist attacks in Saudi Arabia and Iraq, where coalition forces are trying to reconstruct the oil industry.

Analysts believe it will take only a cold winter in the US or fresh attacks in Iraq to fuel another price spurt.

Simon Wardell at WMRC, said: 'People have started to take notice of the fact that the US stock position has altered quite considerably and the hedge funds are taking their money out, believing prices have gone as far as they can go. But there are still upside risks.'