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Fri 19 Dec 2008 12:59 PM

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OPEC will comply with cut, officials say

Officials from oil cartel confident members will comply, but say prices will take time to respond.

OPEC member states are expected to comply in full with the record oil supply cut they agreed this week but prices will take time to respond, officials from the producer group said on Thursday.

Oil fell below $40 a barrel after the Organization of the Petroleum Exporting Countries agreed a 2.2 million barrels per day (bpd) output reduction the previous day in Algeria to revive prices battered by slumping demand for fuel.

"Everybody will comply, this is what we discussed in our deliberations yesterday," said OPEC Secretary-General Abdullah al-Badri upon his arrival for high-level talks between major oil producers and consumers on Friday.

"It is a substantial cut. At this time we need to wait and see how the market will react."

For a sustained price recovery, OPEC must enforce strict compliance with its output curbs - historically a tricky task in a falling market.

The group that pumps more than a third of the world's oil already has reductions of 2 million bpd in place since November. But OPEC itself estimates November compliance with those curbs at only around 50 percent.

The latest cut lowers the supply target for the 11 members bound by output limits to 24.845 million bpd - down nearly 15 percent from September output. It takes effect from January.

Qatari Oil Minister Abdullah al-Attiyah, asked whether OPEC would be able to comply with these reductions, replied: "I am confident about that."

Asked what the group could do now, given that prices had so far failed to respond positively to the new OPEC agreement, he said prices would eventually climb.

"All this now from the market reflects psychology rather than actual demand - it will take time for prices to react."

He told reporters he was concerned by current oil prices and said the low levels had forced Doha to delay some downstream projects.

"My big concern is cheap oil now will lead to a lot of postponements," he told reporters. (Reuters)

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