LONDON, 11 December 2002 — OPEC producers may agree to a hefty cut in oil supplies when they meet this week to keep prices near $25 a barrel, Saudi Arabia said yesterday.

Petroleum and Minerals Minister Ali Al-Naimi wants to restore output discipline in the group by eliminating quota-busting and tightening supply to combat the impact of weak economic growth on oil demand.

He told reporters in London that support was growing in OPEC for an ambitious move that would see a reduction in actual output accompanied by increased formal supply targets, made irrelevant in recent months by heavy quota-busting. "Now there is a need to cut," Naimi said.

"Most also agree on the need to raise the (formal) ceiling." Naimi said there was a need to reduce actual output by 1.5-2.0 million barrels per day and raise the group’s formal target by 1.0-1.5 million bpd. The new limits would be introduced from Jan. 1 for the first quarter.

Rampant leakage means actual OPEC supply outstripped self-imposed limits of 21.7 million barrels daily by 2.82 million bpd in October, according to latest data from OPEC’s Vienna headquarters.

The Organization of Petroleum Exporting Countries, meeting tomorrow, appears more worried about a possible glut next year than the threat of a price hike that could come if the United States launches an assault on Iraq. It is preparing to meet as a strike in OPEC member Venezuela to protest the policies of President Hugo Chavez brings exports close to a standstill.

Naimi said ministers had decided at their last meeting in Japan in September to turn a blind eye to leakage over official limits to stop prices going too high. Now the Saudi minister and others in OPEC want to restore order to their discredited system of supply quotas. "If the economy doesn’t improve then it will hurt the expectations of demand growth in 2003," he said. "We’ve worked to put the price where it is now and we’re happy with it around $25."

Riyadh already has public support from OPEC’s second biggest producer Iran for the idea of raising quotas and cutting actual output. But some ministers may be worried the move will send the wrong message to world markets.

Traders reacted to the plan with skepticism.

Naimi said a final decision will depend on consensus among ministers and supply data presented to them at tomorrow’s meeting. (R)