Oil rose above $74 today, supported by expectations OPEC may cut output this week to boost prices that have fallen more than 50 per cent in just three months from a record high above $147 a barrel.
US crude for November delivery was up $2.39 at $74.24 a barrel by 11.58am. The contract settled $2 higher on Friday at $71.85. London Brent crude rose $2.24 to $71.84 a barrel.
"In our view, OPEC could well announce a 1 million barrel per day output reduction," Merrill Lynch said in a research note.
"Under a catastrophic demand scenario, we believe OPEC could be forced to withdraw up to 2.4 million bpd from the market in the next 12 months."
Several OPEC member countries have already called for an output cut, including Iran, Qatar and also Chekib Khelil, president of the Organization of the Petroleum Exporting Countries.
But others in OPEC are concerned a big reduction could send the wrong signal to financial markets, which are still trying to find stability after the shocks of the credit crisis.
"If there is a need to cut 500,000 barrels per day or 1 million barrels per day of the organization's production or not...the decision should be presented in a way that gives confidence to the market and the world and does not give a negative impact," al-Hayat, a Saudi-owned Arab language newspaper said, quoting an OPEC source.
A global economic slowdown could lessen the impact of any OPEC cuts to defend prices.
"We expect energy and industrial metals prices will be the major casualties in this environment," Deutsche Bank said in a research note.
"We expect the oil price to fall to $50 a barrel by the end of next year," it said. "History would suggest that OPEC will struggle to defend oil prices in an environment where world GDP growth falls below 2 per cent, as occurred in 1998 and 2001."
Oil, which hit a record high of over $147 a barrel in mid-July, touched a 16-month low of $68.57 last week, pressured by falls in demand in top energy consumer the United States and other industrialised countries.
Reuters