OPEC may keep quotas on production steady

Saudi Arabian Oil Minister Ali Ibrahim Naimi believes that crude prices are unlikely to fall below $60 a barrel because of rising costs to develop tar sands and alternative fuels.

Producing oil from the alternatives costs about $60 to $70 a barrel “and, therefore, a line has been drawn below which the price cannot fall,” Naimi said in an interview published Saturday in PetroStrategies, a Paris-based newsletter.

Naimi and other ministers of the Organization of the Petroleum Exporting Countries will meet this week in Vienna to set quotas as winter heating demand fades and the U.S. economy slows. OPEC has cut supply four times between January and April in the last seven years. A rally to a record price of $103.05 a barrel Friday in early electronic trading, before closing at $101.84 on the New York Mercantile Exchange, makes it more likely that OPEC will hold quotas steady, analysts said.

“Politically, it’s not in their interest to announce a cut,” said Fadhil Chalabi, executive director at the Centre for Global Energy Studies in London and a former Iraqi oil ministry undersecretary. “In order to keep the price above $90, they will have to eventually cut production, but not officially. They will do so voluntarily.”

OPEC members including Iran and Algeria have said that output should be discussed because demand for OPEC crude will decline by about 1.5 million barrels a day between the first and second quarters as winter demand ebbs.

“We don’t expect to put more oil in the market,” OPEC President and Algerian Oil Minister Chakib Khelil said last week. Inventories are “very high and international demand is expected to decrease in the second quarter.”

OPEC will probably retain its output target for 12 of its 13 members at 29.67 million barrels a day at Wednesday’s meeting in Vienna, said 29 of 30 analysts surveyed by Bloomberg News.

OPEC rebuffed U.S. requests to increase supply at its meetings on Feb. 1 and Dec. 5. Federal Reserve Chairman Ben S. Bernanke warned last week that rising oil prices would “create a very difficult problem” for the U.S. economy, already facing the threat of a recession.