Wheels turning as OPEC faces hard choices

VIENNA, Austria - Slash oil output to boost revenues, but risk deepening the world's economic woes? Rarely have OPEC oil ministers faced a tougher choice.

The Organization of Petroleum Exporting Countries meets in Vienna tomorrow, and its members could reduce daily production by up to half a million barrels - or they could do nothing.

OPEC meetings are usually more clear cut. If oil ministers of the 12-nation organization think prices are too low, they decide to crimp output - as they have at the last two meetings. If oil is too pricey, as was the case less than a year ago, they boost production. And if they are happy, they keep to the status quo.

But desperate times call for more finessed decisions.

The ministers want to bolster prices now. But it won't be an easy decision.

While prices are up from their low of about $30 a barrel just a few weeks ago, crude still fetches less than a third of what it did last summer - when it was at about $145. Oil closed yesterday at $46.25 in trading on the New York Mercantile Exchange.

That is well below the break-even point for producing nations, which could affect not only their national budgets but oil production as well.

But cheap crude has been one of the few bright spots in a world economy reeling from the financial meltdown that has led to the deepest and most stubborn global recession in decades. While a substantial output cut could cause prices to spike and increase OPEC revenues, it could prolong economic woes in the United States and other major oil consumers.

And such a reduction could deepen the perception that OPEC is out for profits, whatever the global costs. Also, it could ultimately backfire in real terms, by further depressing demand and driving down prices.

"They don't want to be seen as fueling recession further, which is what they're going to be seen as doing if they reduce production more," London-based analyst John Hall said.

But if OPEC cannot bring in enough money to expand production, there is a danger of a price spike when the global economy recovers.

Two reports published yesterday were expected to support traditional OPEC hard-liners such as Venezuela in their arguments that a further output cut is needed.

The International Energy Agency said world demand would drop in 2009 for a second consecutive year for the first time since 1982-83. The forecast drop from 2008 was 1.5 percent, to 84.4 million barrels per day.

An OPEC report, meanwhile, noted that demand for oil produced by the cartel - which can supply more than a third of total world output - was expected to fall this year by 1.8 million barrels a day to 29.1 million barrels.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said OPEC was in a bad spot.

"It would be unthinkable that anything can happen at this meeting that would lead to a major sort of move in fuel prices," Kloza said. "This isn't the year for it. The world is broke and it's not using energy."