Oil holds steady bracing for possible OPEC cut

Oil holds steady bracing for possible OPEC cut

LONDON (Reuters): Oil prices held firm on Tuesday amid growing expectations that the OPEC cartel could curb supplies again.

London's Brent crude futures for April delivery traded one cent lower at US$27.30 a barrel. U.S. March light crude was 34 cents stronger at $29.50.

Dealers said the market was firmly focused on the possibility of a fresh OPEC oil production cut when the cartel holds a policy meeting in Vienna next month.

OPEC is leaning towards another reduction because it fears an economic slowdown will stunt demand for its crude, a Gulf source familiar with policy in Saudi Arabia, the cartel's biggest and most influential producer, said last week.

OPEC Secretary-General Ali Rodriguez said on Monday there was "almost a conviction" among producers for a production cut ahead of a forecast drop in demand in the second quarter of the year.

Rodriguez said the supply curb could be up to a million barrels per day "in the worst case scenario."

There are fears among consumer nations that lower OPEC supplies could lead to a price spike that could dent economic growth.

Despite opposition from key consumers the United States and Europe, OPEC slashed output by 1.5 million barrels per day (bpd) in January to offset an expected seasonal fall in demand.

"There are worrying indications that OPEC hawks might see a drop in the price of the basket below $25 a barrel as a signal for further cuts," said the Center for Global Energy Studies in its monthly oil report.

OPEC has a preferred price range of $22 to $28 for its basket of seven crudes which on Monday was valued at $25.28.

Some OPEC hawks would prefer to defend a price nearer to the top end of the range while the United States would prefer prices at $20-$25 for light U.S. crude -- equivalent to $16-$21 for the OPEC basket.

One dealer said an OPEC cut of about 600,000 bpd would be wise given the International Energy Agency's (IEA) oil market report last week which revised down the outlook for global oil demand growth this year by 140,000 bpd to 1.5 million bpd.

"It is probably a fairly sensible measure given the demand situation. You have the IEA reducing demand figures. There is no sign of any panic in the market," said Tony Machacek of Prudential Bache.

Energy Minister Purnomo Yusgiantoro said on Tuesday that an Indonesian delegation will seek support from fellow OPEC member Nigeria for a further output cut on a visit to Abuja next week.

"For Indonesia, OPEC needs to cut production during its meeting in March. According to a study there will be a 1.5 million barrels per day drop in demand," Yusgiantoro said.

But Iranian Oil Minister Bijan Zanganeh has not committed to new supply restraints, saying it was too early to predict whether OPEC ministers would decide to cut output.

"If prices are stable, we don't need to act in March, it depends on the market situation," he said on Tuesday during a visit to Japan. Iran is OPEC's second largest producer.