Finance & Business World

OPEC stands ready to cut yet more oil output at a meeting next month, its fourth reduction since September, to revive prices battered by the first demand drop in more than 20 years.

A cut of around 1 million barrels per day (bpd) could be discussed by the organization’s ministers at their March 15 meeting in Vienna, an OPEC source told Reuters.

That would bring announced supply cuts by the Organization of the Petroleum Exporting Countries to 5.2 million bpd, about 6 percent of world demand.

Oil has risen to about $41 a barrel from levels below $34 touched in December, the lowest in more than four years. OPEC officials say the price remains too low to give producers a decent income or encourage investment in new supplies.

“We’re coming up to the second quarter when demand will drop even further,” said an OPEC delegate, who thought an additional cutback of 1 million bpd was “logical.” Consumption typically falls in the northern hemisphere spring as heating demand drops.

“But the big question is the economy. If it starts to revive, or at least does not slow further, it will help demand.”

OPEC’s president and secretary general in the past week have raised the prospect of the group cutting output further, adding to calls from Venezuela and Iran who are often the first in the group to back action to boost prices cash loans.

World demand is expected to fall for a second year in 2009, but some oil consultants believe it will bottom out in the middle of the year. Oil inventories are high, pointing to a supply surplus.

Stocks in the Organization for Economic Co-operation and Development (OECD), a key indicator for OPEC, at the end of November equaled 56.4 days of demand, higher than the 52 days OPEC wants to see.

“The bottom line is the market still wants to see OECD imports and stocks coming down,” said Mike Wittner, analyst at Societe Generale.

“So OPEC may decide to cut another 1 million barrels a day when it meets in March — and that would be a pretty significant cut.”

OPEC WORRIED

Most economic indicators remain gloomy. OPEC is among forecasters that expect world oil demand, already expected to contract this year, to weaken further.

“We are really worried about demand, that’s why we’ve cut three times — and the global economy is still in bad shape,” said a senior OPEC delegate.

OPEC has lowered output drastically during past economic downturns, successfully defending prices. 

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Euro zone manufacturing business shrank at a slightly slower pace in January while factory prices tumbled at their fastest rate in at least six years, a survey showed on Monday, leaving scope for further interest rate cuts.

A survey on China also reported that the pace of deterioration in business conditions had eased, providing tentative evidence that factories in these two regions may be pulling out of their deep dive.

Still, South Korea reported a record fall in exports and a slump in sales pushed more Japanese electronics firms into the red highlighted the urgency for more action to contain the global downturn.

In the United States, President Barack Obama will try later on Monday to overcome opposition from Republican lawmakers to parts of his plan to revive the rapidly shrinking U.S. economy by spending nearly $900 billion.

Markets see the plan as a key part of efforts to limit the damage from the crisis sparked by a U.S. housing slump that wiped out nearly $14 trillion in global stock market value last year, pushed several major economies into recession and put millions of jobs on the line.

In Europe, a survey of about 3,000 manufacturers showed only Germany among the euro zone’s leading four economies had registered a deepening contraction in January.

France, Italy, and Spain all saw some slowing in the pace of decline.

The Markit Eurozone Manufacturing purchasing managers’ index (PMI) for January rose to 34 free copy of my credit report.4 from 33.9 in December, the eighth month in a row the index has been below 50.0, which separates growth from contraction.

The PMI also showed companies’ costs falling at their fastest pace in the near 12-year survey history, suggesting more leeway for the European Central Bank to cut rates by March as is widely expected.

A purchasing managers’ index on China, produced for brokerage CLSA, rose to 42.2 in January from 41.2 in December, indicating conditions are deteriorating overall but at a slower pace.

China’s Premier Wen Jiabao also pointed to signs of recovery.

“During the last 10 days of December it started to get better,” Wen told a business audience in London. “The goods piled up in port started to decrease and the price of industrial products started to rise.”

Still, Wen told the Financial Times that the authorities may provide “new, timely and decisive measures” to support the economy, having already pledged to spend 4 trillion yuan ($585 billion) over the next two years.

Figures from South Korea were more sobering. The home to some of Asia’s top manufacturers and exporters reported a record 32.8 percent drop in exports in January from a year earlier.

“The fall was really shocking,” said Jun Min-Kyoo, economist at Korea Investment & Securities. 

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