Saudis: 2 Million-Barrel Production Cut Likely

By Adam Schreck

Oran, Algeria -- OPEC powerhouse Saudi Arabia said Tuesday that the oil cartel would cut production by about 2 million barrels a day to halt a precipitous fall in prices.

Oil minister Ali Naimi said "supply is still somewhat in excess of demand" and global stockpiles are higher than normal, reflecting comments made earlier by OPEC President Chakib Khelil and other delegates.

"Of course, to bring things in balance, there will be a cut ... to the tune of about 2 million barrels," Naimi said.

OPEC is not slated to officially announce a decision on production levels until Wednesday.

Saudi Arabia, by far the largest producer in the Organization of Petroleum Exporting Countries, usually sets the tone on production cuts and other major policy decisions.

The presence of a high-level delegation from nonmember Russia, the world's second-largest oil producer, and the bleak outlook OPEC painted in its latest market report only added to investors' hopes that coordinated action would be taken to stop crude's rapid slide from the record it hit in July above $147 a barrel.

While the near 70% drop in oil prices from their summer highs is good news for drivers already straining from the financial crisis, members of the 13-nation OPEC are hurting from levels that are now in some cases below what's needed to balance their budgets or earn a profit at some production sites.

Oil producers fear a drawn-out lull in prices could hurt investment and lay the groundwork for another sharp price spike when national economies rebound from the current, widespread recession.

"What is important is that there should be a consensus to cut production. A significant cut," Venezuela's energy minister said after arriving in Algeria's second-largest city.

Rafael Ramirez, whose country ranks among the Organization of Petroleum Exporting Countries' price hawks, added that Venezuela favors a cut of between 1 million to 2 million barrels per day.

OPEC gave ministers ammunition to justify cuts in its latest monthly market report, released Tuesday. The bloc predicted demand for its crude oil fell by 700,000 barrels per day this year, and will drop by at least twice that amount in 2009 as the worsening global economy "is expected to have a strong impact on oil demand."

On Monday, OPEC President Chakib Khelil hinted at the magnitude OPEC is considering by evoking the group's last Algeria meeting four years ago, where "we reduced by 2 million barrels."

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Associated Press writers George Jahn and Alfred de Montesquiou in Oran contributed to this rep