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Oil prices steady at $44 ahead of OPEC meeting

(Agencies)
Updated: 2008-12-16 14:53

SINGAPORE – Oil prices were steady above $44 a barrel in Asia on Tuesday, a day before investors expect OPEC to announce a big production cut.

Algeria's Oil Minister and OPEC President Chakib Khelil (front) gestures next to OPEC Secretary-General Abdullah al-Badri on their arrival in the western Algerian city of Oran December 15, 2008. Oil rose above $48 a barrel on Monday, boosted partly by expectations OPEC will agree on a deep supply cut this week to try to prop up prices. [Agencies]

Related readings:  OPEC ready to cut oil output as prices dive

Light, sweet crude for January delivery was down 6 cents to $44.45 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $1.77 to settle at $44.51.

Investors are looking to the Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, to announce a substantial reduction of output quotas at its meeting Wednesday in Algeria.

OPEC President Chakib Khelil suggested Monday the group may slash as much as 2 million barrels a day, equaling a cut at the cartel's last Algeria meeting four years ago.

Khelil said that a fair price for oil would be around $70 to $80 per barrel — the benchmark for several OPEC members below which they lose money on production.

Mohammed Al-Aleem, Kuwait's oil minister, said Monday that OPEC should cut supply to help balance a large market surplus.

"At the very least, a cut should help stabilize the market," said Gerard Burg, minerals and energy economist with National Australia Bank in Melbourne. "The impact may be relatively muted, but it could add some upward pressure on prices."

Investors will be watching for evidence OPEC members are adhering to any announced cuts, as exceeding quotas has dogged the organization throughout its history.

"That's going to be the difficult thing," Burg said. "OPEC's cohesiveness has really deteriorated over the last few years because the world was consuming everything it could produce."

Many OPEC members based their budgets assuming oil prices would be above where they are now. The group's efforts to bolster prices — including output cuts totaling 2 million barrels a day in September and October — have been ignored by investors preoccupied with the worst economic slowdown to hit developed countries in decades.

Oil prices, which reached a four-year low at $40.50 earlier this month, have fallen about 70 percent since peaking at $147.27 in July.

"The market is still consumed with demand-side factors," Burg said. "We don't expect a recovery until the second half of next year, so there's potential for further negative news to have a dampening affect on the crude market."

In other Nymex trading, gasoline futures rose 0.16 cent to $1.04 a gallon. Heating oil gained 0.24 cent to $1.46 a gallon while natural gas for January delivery was steady to 5.64 per 1,000 cubic feet.

In London, January Brent crude was steady at $46.36 a barrel on the ICE Futures exchange.