OPEC

The oil market is balanced, said Ali Naimi, Saudi Arabia’s powerful oil minister, making it less likely the Opec oil cartel will formally decide to cut its output at a meeting later on Tuesday.

Mr Naimi said as he arrived in Vienna in the early hours of Tuesday: “The market is fairly well balanced and we have worked very hard since June’s meeting to bring prices to where they are now.”

e added: “Whatever the customers want, we will satisfy.”

Mr Naimi’s keenly-awaited words mark the first time he has spoken publicly about Saudi Arabia’s oil policy in several weeks. Oil prices fell by more than $1 with Nymex October West Texas Intermediate down $1.42 to $106.47 while ICE October Brent lost 74 cents at $102.70 a barrel.

Most analysts and traders this week predicted Opec would have to discuss reducing its output to shore up oil prices that have fallen more than 25 per cent since July. But they forecast that ultimately the group would maintain the status quo, at least formally, when they met in Vienna later on Tuesday.

Ed Morse, chief energy economist at Lehman Brothers, argued that Saudi Arabia, Opec’s de facto leader, had an interest in even lower prices to reignite demand. ”Opec output is likely to remain unchanged at the upcoming meeting,” he said in a note to clients.

Those predictions were mirrored by comments from other ministers, such as Galo Chiriboga, Ecuador’s energy minister, who forecast on Monday morning that Opec would change nothing.

Mohammed Abdullah Al-Aleem, Kuwait’s energy minister who sits on the committee that helps steer Opec’s decisions through economic analysis warned that supply was outpacing demand. But, he said: “For the time being ... there is no need to cut production.”

Mr Naimi’s comments a few hours later were widely interpreted as making this outcome even more likely. However, nothing is final until ministers meet after sundown on Tuesday and many analysts suspect Saudi Arabia will continue quietly to cut its own production if it feels the market is oversupplied.

Iran and Venezuela, Opec’s most hawkish members, had called for the 13-country group to reduce production, but even their message was less ardent than at past meetings. Opec members with better ties to Washington were also keen not to anger their biggest customer ahead of the presidential elections in November.

It is possible Opec in Tuesday’s communiqué will remind members of their quota obligations, which many brushed aside when oil prices rose to records of more than $147. This would signal to the market the group was prepared to act if prices fell further and give Saudi Arabia some cover to quietly cut back the extra barrels it pumped on the market this summer.

Opec members are likely continue to watch prices closely in the runup to their next meeting, which is to be held in Algeria in December.

They face a delicate balancing act, having to weigh the benefit lower oil prices have in stimulating demand for their most precious resource with the drawback of reduced revenue if prices continue to fall significantly.

In volatile trading on Monday, Nymex October West Texas Intermediate fell to an intraday low of $104.70 a barrel, the lowest level since April. It had risen as high as $109.89 on concerns about hurricane Ike keeping oil and gas production in the Gulf of Mexico shut.

The drop came as the US dollar surged to its highest level against the euro since October 2007 at $1.4095, an issue seized on by ministers on Monday.

Chakib Khelil, Algeria’s energy minister and Opec’s president said on Monday: ”What we are seeing now is that the inverse relation between the U.S. dollar and the oil price is verified.”

Copyright The Financial Times Limited 2008