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The art of prediction

Energy analysts are working overtime to try to anticipate what today's OPEC meeting in Vienna will bring, with predictions on output ranging from mild to downright pessimistic.

Traditionally hawkish Iran and Venezuela have been calling for a reduction in output, or at least a stricter adherence to quotas, as decreasing demand and a tumultuous hurricane season in the Gulf of Mexico have resulted in seesawing oil prices. This hard core of ministers maintains that the market is over-supplied following months of over-production led by top exporter Saudi Arabia.

They have argued output must be reduced sooner or later to bolster prices, which have plunged by nearly 30 per cent from a record of over $147 a barrel in July.Prices fell to a five-month low just above $105 on Friday, under pressure from lower oil demand and economic weakness.

They recovered to above $107 a barrel yesterday as traders weighed the risk Hurricane Ike could crash into energy installations in the US Gulf of Mexico after sweeping through Cuba."Of course, of course. I believe that the market is over-supplied," Iranian Oil Minister Gholamhossein Nozari said on arrival in Vienna early yesterday.Nozari has previously said that $100 a barrel was the minimum 'acceptable' price for oil, while the country's OPEC governor was quoted on Sunday as saying the price could not fall below $80 as that was the cost of bringing on some new fields.Various analysts have said the most likely outcome of OPEC 's meeting would be to leave targets unchanged, which still leaves the group plenty of scope to reduce supply surreptitiously.

The trimming can be achieved by members, mainly powerhouse Saudi Arabia, agreeing to cut their excess production above their OPEC quota, which would remove oil from the market but not amount to a formal change in policy.However, Libya has also thrown its weight behind Iran's drive to secure a reduction in OPEC production."Anyone that is overdoing their quota should respect it," Libya's OPEC representative, the National Oil Corporation chairman Shukri Ghanem, said on Sunday. "The market is more than oversupplied it seems."Although most analysts believe the meeting will lead to an informal cut in output, the respected energy consultancy PFC Energy has raised the spectre of an outright reduction in the group's production target.

"Though Riyadh will not be bullied into agreeing to a production cut, the near consensus within the group that some reduction in volumes is needed... raises the distinct possibility that the final communique in Vienna will announce an output reduction," PFC said. OPEC as a group last acceded to an official change a year ago in Vienna when it agreed to a modest increase of 500,000 barrels per day.

The price of oil was then less than $80 a barrel, compared with average prices this year of above $100."We have a neutral view on that [OPEC] meeting, with a bias that it will end up in supportive words rather than supportive action," analyst Olivier Jakob of Petromatrix wrote in a note.Given that the market already expects Saudi Arabia to cut its production, he said there was a case for making it public."Hurricane Ike is however probably complicating things a little bit as it is not the best timing to announce a reduction in output while destructive potential still looms in the US Gulf of Mexico," Jakob added.

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