Gustav no help to oil bulls; now OPEC gets its say on price

Hurricane Gustav apparently didn’t take out much oil production. But OPEC could.

Even as crude prices dive below $110 a barrel today for the first time since early in April, analysts are turning their focus to the Organization of the Petroleum Exporting Countries’ meeting on Sept. 9.

The question is how much lower the cartel is willing to see oil go before it moves to rein in output.

With the price at $109.75 a barrel at about 11:40 a.m. PDT today -- down $5.71 from Friday, and down about 25% from the peak of $145.29 a barrel in July -- some experts see pressure building on Saudi Arabia to support a cutback in production.

A survey by Reuters showed that OPEC output rose in August for a fourth consecutive month, led by Iran, Nigeria and Angola. "The survey indicates OPEC is pumping almost 800,000 barrels per day more than its target and comes as some members are voicing concern that the world market is oversupplied," the news service said.

"I see the Saudis as being more hawkish than they’ve been in a while," said John Kilduff, senior vice president of risk management at trading firm MF Global Inc. in New York. With crude tumbling anew, "they’re going to get a healthy dose of ‘I told you so’ from other members."

But with the global economy showing more signs of slowing, particularly in Europe, some analysts question whether any OPEC move to bolster prices would have the opposite effect: destroying more demand and leading to another sharp decline in crude.

"I’d be surprised by an OPEC cut," said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Mass. He thinks it would take a price below $80 a barrel for the Saudis to start worrying. "And they’re really the only ones who could cut production" enough to make a difference, he said.

The big dive in prices today was triggered by relief over Gustav and by more data pointing to economic weakness abroad. The Paris-based Organization for Economic Cooperation and Development cut its 2008 growth forecasts for Japan and Europe, although it raised its forecast for the U.S. And Australia’s central bank trimmed its benchmark interest rate for the first time in almost seven years.

As usual, there are plenty of wild cards in the oil-price equation. One is that we’re still in hurricane season. "There’s a conga line of storms lined up from Africa to the Bahamas," any of which could pose a bigger threat to Gulf of Mexico oil and natural gas production than Gustav, Kilduff said.

Another issue analysts are watching closely: whether oil demand begins to decline in Asia, where so far it has held up. "If there’s no contraction in demand in Asia, I think it’s going to be hard to break $100 a barrel," Kilduff said.

Photo: In the crude oil options trading pit today in New York. Jin Lee / Bloomberg News