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Oil prices higher ahead of OPEC meet

business Updated: Dec 17, 2008 09:15 IST

Oil prices rose in Asia on Wednesday as traders awaited an expected cut in output by the OPEC cartel desperate to stop a slide in prices, analysts said.

New York's main futures contract, light sweet crude for January delivery, rose 59 cents to 44.19 dollars a barrel after dropping 91 cents to 43.60 at the close of trading Tuesday on the New York Mercantile Exchange.

Brent North Sea crude for February rose 82 cents to 47.47 dollars a barrel.

The January Brent contract expired at the close of trading on Tuesday, down four cents at 44.56 in London.

"The market is in a holding pattern" ahead of the Organisation of the Petroleum Exporting Countries (OPEC) meeting later Wednesday in Oran, Algeria, said Dave Ernsberger, of global energy information provider Platts, in Singapore.

OPEC, whose 13 member nations together pump close to 40 percent of world oil, will announce an output cut of about two million barrels a day following the meeting, the Saudi Arabian oil minister said after he arrived in Oran.

"Supply is still somewhat in excess" of demand, Ali al-Nuaimi said.

"Inventories are also higher than normal. To bring things in balance there will be a cut of about two million barrels."

The organisation's official daily output target is 27.3 million barrels but analysts say it is producing slightly more than this as some members seek to boost income.

OPEC has also called for non-members of the cartel to join in the cuts. Russia, the world's biggest non-OPEC oil producer, said it may slash daily oil exports by up to 320,000 barrels.

Fears that a slowing global economy is damaging demand for oil have pulled prices down from record highs above 147 dollars reached in July.

Ernsberger said OPEC fears the price could drop to 20 dollars in February.

"But the reality is if demand isn't somehow stimulated then all of these cuts are not going to help OPEC achieve what they
really want to achieve," which is stopping the slide in prices, he said.

At the same time, the only thing that would stimulate demand is lower prices, which OPEC resists, Ernsberger added.

"They are desperate for demand to return but they are part of the problem, not part of the solution."

Several OPEC members heavily dependent on oil exports, notably Nigeria, Ecuador and Venezuela, are being squeezed financially by this year's dramatic fall in oil prices.

The oil market showed little enthusiasm for the United States Federal Reserve's key interest rate cut to virtually zero, Ernsberger said.

The central bank's Federal Open Market Committee on Tuesday lowered its federal funds rate from 1.0 percent, to a range of zero to 0.25 percent.

"This time the market is not excited," because the Fed has no more ammunition left, Ernsberger said.