OPEC in agreement on need for deep supply cut… Saudi Arabia has cut supply by 8 percent – OPEC president… Russia offers OPEC “concrete support”

Oil topped $50 a barrel on Monday, boosted partly by expectations OPEC will agree on a deep supply cut this week to try to prop up prices.

A weaker dollar also lent support to oil, which has fallen about $100 from a record high of more than $147 in July, as the global financial crisis has hit demand for fuel.

Goldman Sachs has predicted oil could go as low as $30.

U.S. light crude for January delivery rose to as high as $50.50, topping the $50 line for the first time since early December. It was trading $3.00 up at $49.28 by 1421 GMT.

It has rebounded by more than 20 percent from a 4-year low of $40.50 a barrel on Dec. 5.

London Brent crude gained $2.89 to $49.30.

Members of the Organization of the Petroleum Exporting Countries are in agreement on the need to cut output when they meet on Wednesday in Algeria.

“Everybody is supporting a cut,” OPEC President Chakib Khelil told reporters in Oran. [ID:nLF25582]]

He said Saudi Arabia, the world’s biggest exporter, has cut its supply by 8 percent and this had affected the market.

Since early September, OPEC has said it would reduce supply by a total of 2 million bpd, but prices continued to slide until a rally late last week, spurred partly by Saudi Arabia’s supply cut.

MARKET EXPECTS BIG CUT

Analysts say another 2 million bpd cut is needed from OPEC because demand will remain weak into 2009.

“We think should OPEC go for anything less than 2 million barrels a day, participants would be inclined to use this as a selling opportunity,” said Edward Meir of MF Global in a research note.

“The cartel is simply too far behind the curve to consider anything less than that,” he said.

“With global oil demand expected to continue falling through much of 2009, the pressure is on the cartel as well as non-OPEC producers such as Russia to remove excess production from the market,” said Jonathan Kornafel, Asia director of Hudson Capital Energy in a note.

OPEC’s Khelil said Russia, the world’s biggest exporter outside OPEC, had offered the group its “concrete support.”

There is already plenty of evidence that the world economic downturn has dampened demand for oil.

In China, the world’s second biggest energy consumer, implied oil demand shrank by about 3.5 percent in November from the year before, the first decline in nearly three years, Reuters calculations showed.

Khelil estimated there was an oversupply of 400 million barrels currently in the oil market.

He said he expected global oil demand to drop by 200,000 barrels per day in the first quarter of 2009 and by another 1.2 million bpd in the second quarter.

Jane Merriman
LONDON, Dec 15 (Reuters)

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