* OPEC looks set to cut 2 million barrels per day
* That size of cut now widely discounted in the market
(Updates prices, adds comment)
By Christopher Johnson
LONDON, Dec 17 (Reuters) - Oil slipped towards $43 on
Wednesday as the market awaited an announcement from an OPEC
meeting in Algeria widely expected to agree a big cut in
production in an attempt to halt a collapse in oil prices.
A rise in the dollar also put pressure on the oil market.
The U.S. currency had earlier provided support for oil by
falling after a bigger-than-expected cut in interest rates by
the U.S. Federal Reserve on Tuesday.
Oil ministers from the Organization of the Petroleum
Exporting Countries appeared to be near consensus on a cut in
output of 2 million barrels per day (bpd), the biggest
reduction ever by the producer group. []
But traders said such a cut in production had already been
widely anticipated by the oil market and some investors were
worried that, as the OPEC meeting dragged on, the eventual
announcement could disappoint.
U.S. light crude for January delivery <CLc1>, due to expire
on Friday, were down 28 cents at $43.32 a barrel by 1450 GMT
after having fallen to a low of $42.56 in the previous session,
just off a four-year trough of $40.50 a barrel hit on Dec. 5.
London Brent crude for February delivery <LCOc1> was up 62
cents at $47.27.
"A 2.0 million bpd cut in production now runs the risk of a
'Buy the rumour Sell the fact' scenario," Rob Laughlin, analyst
at MF Global said. "It would have been bullish for the market a
week ago. But we have been warned to expect it now so I think
the market will go up initially but then come down further."
EXTRA SUPPORT
A dealer at a large U.S.-owned trading house agreed.
"I think OPEC will struggle to support this market. A 2
million bpd cut may prevent complete meltdown but I don't think
it will cause a big rally either. The data are overpowering. Oil
demand is falling so fast that is hard to keep up," he said
Oil prices have tumbled more than $100 from the July
all-time record above $147 a barrel as financial turmoil has
slowed global economic growth and hit fuel demand.
OPEC is desperate to halt the slide in prices. Economists
say that at $40 per barrel, 11 of OPEC's 12 members, as well as
Russia and Mexico, face budget deficits.
Analysts said any extra support OPEC could get from
non-members would help support oil prices.
Ex-Soviet Azerbaijan became the only non-OPEC producer on
Wednesday to offer a real output cut to support oil prices,
while Russia refrained from making firm commitments despite
previous declarations that it would.
Mexico, which supported OPEC cuts in 1999 and 2001, said it
would not cut as its output was declining. []
"If OPEC can bring someone else in with a sizeable reduction
then I think that may begin to have more of an impact," said
Simon Wardell, analyst at Global Insight. "If Russia announces
something substantial, I think it will have more of an effect on
sentiment than if OPEC has to go it alone."
In its monthly oil market report, OPEC said on Tuesday the
first drop in world oil demand in 25 years would sharply lower
the need for OPEC crude in 2009, opening the door for a
substantial production cut at its meeting.
For a breakdown on how the expected cut may look, click on
[]
OPEC has already agreed to cut output by 2 million bpd at
two previous meetings, but demand has fallen faster and stocks
of oil are building up. OPEC said 45 million barrels of crude
oil are currently being stored at sea on oil tankers.
Crude oil stocks in top energy consumer the United States
are running near the top of their five-year range and
forecasters expect data to show they rose by another 300,000
barrels last week, according to a Reuters poll ahead of the U.S.
fuel inventory report due later in the session. []
(Additional reporting by Annika Breidthardt in Singapore;
editing by James Jukwey)
