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Saudis say 2 million barrel production cut likely

ORAN, Algeria — OPEC powerhouse Saudi Arabia said Tuesday that the group would cut oil production by about 2 million barrels a day to halt a precipitous fall in prices.

Oil minister Ali Naimi said "supply is still somewhat in excess of demand" and global stockpiles are higher than normal, reflecting comments made earlier by OPEC President Chakib Khelil and other delegates.

"Of course, to bring things in balance, there will be a cut ... to the tune of about 2 million barrels," Naimi said.

OPEC is not slated to officially announce a decision on production levels until Wednesday.

Saudi Arabia, by far the largest producer in the Organization of Petroleum Exporting Countries, usually sets the tone on production cuts and other major policy decisions.

The presence of a high-level delegation from nonmember Russia, the world's second-largest oil producer, and the bleak outlook OPEC painted in its latest market report only added to investors' hopes that coordinated action would be taken to stop crude's rapid slide from the record it hit in July above $147 a barrel.

While the near 70 percent drop in oil prices from their summer highs is good news for drivers already straining from the financial crisis, members of the 13-nation OPEC are hurting from levels that are now in some cases below what's needed to balance their budgets or earn a profit at some production sites.

Oil producers fear a drawn-out lull in prices could hurt investment and lay the groundwork for another sharp price spike when national economies rebound from the current, widespread recession.

"What is important is that there should be a consensus to cut production. A significant cut," Venezuela's energy minister said after arriving in Algeria's second-largest city.

Rafael Ramirez, whose country ranks among the Organization of Petroleum Exporting Countries' price hawks, added that Venezuela favors a cut of between 1 million to 2 million barrels per day.

OPEC gave ministers ammunition to justify cuts in its latest monthly market report, released Tuesday. The bloc predicted demand for its crude oil fell by 700,000 barrels per day this year, and will drop by at least twice that amount in 2009 as the worsening global economy "is expected to have a strong impact on oil demand."

On Monday, OPEC President Chakib Khelil hinted at the magnitude OPEC is considering by evoking the group's last Algeria meeting four years ago, where "we reduced by 2 million barrels."

"There's always been some finger-pointing at OPEC, but now even some (rich consuming nations) are saying maybe prices have gone too far," Olivier Jakob of energy analysis firm Petromatrix in Switzerland said ahead of the meeting. "In terms of security of supply, you are much worse at $40 a barrel than at $75."

A decision on production is not expected to come until OPEC meets Wednesday, but the group has signaled in recent days that a large cut is necessary to shock the market and put a floor under prices.

Shokri Ghanem, Libya's delegate to OPEC, said that "we should make a substantial cut." Asked how much, he answered: "That we'll decide."

Angola's oil minister, Botelho de Vasconcelos, said shortly before leaving for Oran that he likewise expects new production cuts. He said the bloc wants price stability for both producers and consumers, and that producers would like to see a price of between $70 and $75.

Angola joined OPEC in 2007, making it the newest member of the cartel. It takes over OPEC's rotating presidency in January.

OPEC must weigh production cuts against the risk of driving the economies of its top customers deeper into recession.

A senior OPEC official, who spoke on condition of anonymity because he was not authorized to comment publicly, said "reasonable" OPEC nations would accept prices around $50 a barrel in the short term so as not to contribute to the world economic downturn.

Ministers arrived to Oran under extraordinary security. Police and the military manned multiple check points in and around the city.

Local newspapers reported that authorities swept through the western Algeria port to temporarily take dozens of petty criminals off the streets. The El Khabar daily said an additional 4,000 police officers were assigned to the city.

The OPEC meeting comes as two al-Qaida militants were killed in a gunbattle with the army in a town near Oran this weekend. Security was further tightened on Tuesday as Algeria's President Abdelaziz Bouteflika arrived to tour the city and meet the OPEC delegates ahead of presidential elections this spring.

Associated Press writers George Jahn and Alfred de Montesquiou in Oran contributed to this report.

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