Saudi Arabia on Tuesday said oil producers needed to take about 2m more barrels a day off the market to shore up falling prices.
Arriving in Oran, Algeria, ahead of an Opec ministerial meeting on Wednesday, Ali Naimi, Saudi Arabia's powerful oil minister, said Opec had so far cut a total of 1.7m barrels a day, with Saudi Arabia accounting for 1.2m b/d.
It was unclear whether the 2m b/d that Mr Naimi was referring to related to cuts by the Opec cartel alone which supplies about 40 per cent of the world's oil or a combined total from Opec and non-cartel members such as Russia.
However, his comments highlight the resolve of the world's biggest oil producer to drive down supplies in the hope of lifting prices back to around $75 a barrel, a level the kingdom sees as "fair".
A 2m b/d reduction in output would double the cuts the cartel has already announced since September and would be seen by the market as a very large commitment.
In morning trading in New York, West Texas Intermediate, the US benchmark, fell 29 cents to $44.22 a barrel on concerns that Opec's cut will not prevent a further increase in oil inventories. Earlier, WTI hit an intraday high of $46.53, supported by a weak US dollar and rising equity prices ahead of the US Federal Reserve meeting on interest rates later on Tuesday.
In London, Brent crude oil, the European benchmark, rose 22 cents to $44.82 a barrel.
Venezuela and Iran, Opec's two most hawkish members, also urged the cartel to cut output.
Rafael Ramirez, Venezuela's energy minister, said: "We want a very, very strong decision," adding that he would support a further cut of 1m-2m b/d.
Gholamhossein Nozari, Iran's oil minister, concurred, saying: "A cut of 1.5m-2m b/d a day of Opec's oil can restore stability to the oil market and keep its price at a suitable level."
But Opec is fighting a losing battle, with even its own forecasters warning of the big challenge the cartel faces.
In its most recent monthly report, published on Tuesday, Opec said: "The growing imbalance in the oil market over the coming quarters will lead to a much higher overhang in inventories, if the global recession deepens. This presents a real challenge for all market participants and will be the main focus of discussion at the ministerial meeting in Oran."
The group admitted that this year had seen sharp revisions in oil demand forecasts, from a previously projected increase of 1.3m b/d to a drop of 100,000 b/d. In 2009, Opec expects demand for its oil to fall by 1.4m b/d to average 30.2m b/d. Demand in the first quarter of the year is expected to be particularly weak, falling 2.3m b/d from the first quarter of 2008.
The situation is so out of kilter that Opec forecasters all but urged the group's members to make a cut, arguing: "As a result, the recently agreed Opec production levels will be higher than the demand for Opec crude, which would lead to a contra-seasonal build in the first quarter and further stockbuilds over the next two quarters."
Opec said it was producing 31.1m b/d in November, or 28.78m b/d excluding Iraq, which is not bound by Opec's policy decisions to curtail production.
Storage tanks across the world are so full with unwanted oil that that traders and oil companies are resorting to the more expensive option of using supertankers to hold barrels.
The surge in floating storage enough to meet France's oil imports for a month and the biggest since late 2001 is a graphic indication of just how much oil demand has fallen as the US economy has slipped further into recession and growth in China and the rest of the world has slowed.
China and the US are the world's largest consumers of oil. But their thirst has diminished so much in the last six months that the International Energy Agency, the developed countries' energy watchdog, expects world oil demand to shrink, rather than grow this year for the first time in 25 years.
The situation is so dire that Opec has asked Russia, the world's second largest oil producer, to help by cutting its output by 200,000-300,000 b/d of its output. Russia has seized on the opportunity sending a senior delegation to Oran and promising co-operation.
The Russian delegation is expected to include Igor Sechin, deputy prime minister, Sergey Shmatko, energy minister, and several senior Russian oil company executives.
But few analysts believe Moscow will voluntarily reduce its output. Instead, they say, the country's draconian tax laws and dearth of investment will mean its production will drop this winter, regardless of what politicians say.
Copyright: The Financial Times Limited 2008
