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In a world where the traditional notions of supply and demand are being stretched thin, the Organization for Petroleum Exporting Countries is struggling to find a balance between getting the market to take it seriously and keeping prices at a level that waning economies can afford.

Before the cartel met for its second and final day in Algeria on Wednesday, the oil minister from the group's biggest member, Saudi Arabia, said that there was already consensus for a cut of 2.0 million barrels of oil per day. Midway through the day, OPEC president Chakib Khelil then said that a production cut of 2.5 million remained a possibility, according to TradeTheNews.

The market seemed to prefer to wait for the group's official announcement on a cut late on Wednesday. Crude futures on the Nymex were down 4 cents at $43.56 on Wednesday morning, after rising by $1.50 to more than $45.00 a barrel in European trading. United States Oil Fund (nyse: USO - news - people ), an exchange-traded fund that seeks to mirror the returns of crude and other products, was flat at $36.55.

If OPEC were to formally announce that it was cutting by 2.0 million, it would be the biggest single output cut ever made by the organization. Still, such a size would not be particularly alarming. Earlier this month OPEC President Chakib Khelil said there would be a "surprise" cut in production on Dec. 17 and the market has since then upped its forecast for a cut to 2.0 million, from 1.5 million. (See "OPEC's 'Surprise' May Disappoint.") A truly "surprise" cut would have to be one of around 2.5 million to 3.0 million.

Along with tackling an oversupply of oil in the market, OPEC's big challenge will be for all 15 of its members to comply with such a significant cut. For those whose budgets are already stretched--think Iran, Venezuela and Nigeria--that will be especially difficult. The group said that its rate of compliance with that last production cut of 1.5 million in late October had been 85.0%.

"The issue going forward is: 'What is the aim of the supply cut?'" said BNP Paribas analyst Harry Tchilinguirian. "Is it to push for higher prices, or is it to establish a price floor?" Pushing too aggressively for higher prices could backfire in a market that is falling because of waning demand, but the cartel also needs to make a cut significant enough to get the market's attention, he said.

Tchilinguirian believes a cut of 2.0 million would be on the "high side" if OPEC wanted to find that balance, while a reduction of 1.5-1.6 million would be more appropriate.

Saudi Arabia may think that $75 per barrel is a "fair price" for crude, but oil futures slipped further away from that target on Monday as bearish investors saw little hope of demand recovery, despite promises of a production cut from the Organization for Petroleum Exporting Countries in December.

Oil futures dropped to $52.10 per barrel, from $54.43, on the New York Mercantile Exchange, while Brent crude fell more than a dollar to $50.58 per barrel in London. Shares of BP (nyse: BP - news - people ) fell 1.6% in London, with Royal Dutch Shell (nyse: RDSA - news - people ) down 1.9%.

Oil-exporting cartel OPEC made no changes to its production quotas at an informal meeting in Cairo over the weekend--as expected--and an almost-certain cut later in December is not bringing any sense of confidence back to the energy markets.

OPEC is, to a large extent, a victim of bearish market sentiment rather than its own quotas. It is difficult to see how frantic cutting would help the cartel, given that it needs to make sure its already-wavering credibility does not suffer in an environment of falling prices. The 13-member outfit has only just pushed through a cut of 1.5 million barrels, announced in October, which needs to be proven right rather than immediately increased.

"OPEC has done all it could do," said Catherine Hunter, an analyst with IHS Global Insight. She told Forbes.com it was "just too early" to announce a cut over the weekend, so soon after last month's 1.5 million-barrel cut, and that the cartel's meeting in Algeria in December would be a much better time to unveil a cut of between 1.0 and 2.0 million barrels. (See "OPEC's Prelude To A Cut.")

Khelil told reporters in Cairo on Saturday that last month's announced cut was being implemented, according to "preliminary industry indications," and that OPEC member countries were clearly sticking to their promises. Mounting a unified front is crucial for OPEC in the current climate, with skeptics doubting the ability of countries like Iran and Venezuela to sacrifice valuable oil revenues for the greater good.

But the mooted target of $75 per barrel, described as a "fair price" by Saudi King Abdullah in an interview with a Kuwaiti newspaper, still seems elusive. The global slump has even taken the wind out of commodity-hungry China, which the World Bank expects to grow at an 18-year low of 7.5% next year.

OPEC ends Cairo meeting without new output cuts

CAIRO, Egypt (AP) -- OPEC held off on announcing new oil output cuts on Saturday, but its alarm over falling demand and a slumping economy potentially laid the groundwork for a big reduction when it meets again in a matter of weeks.

Chakib Khelil, Algeria's oil minister and the group's president, said the Organization of Petroleum Exporting Countries ministers noted "with concern the continued deterioration of the global economic situation and its impact on oil demand."

The ministers, he said in a statement, agreed to "take any additional action ... to balance oil supply and demand, and achieve market stability" during their Dec. 17 extraordinary meeting in Oran, Algeria.

The outcome of Saturday's meeting in Cairo, convened about a month after the group decided to pull 1.5 million barrels per day of oil from the market, seemed unlikely to put a floor beneath crude prices that have fallen by around 60 percent from their mid-July highs of $147 per barrel.

Saudi Arabia, the 13-member organization's top exporter and kingpin, broke with its usual silence about specific prices and cited $75 per barrel as a favorable target. King Abdullah, in an interview with a Kuwaiti newspaper published Saturday, said that would be a "fair price" -- a message echoed by his top oil official in Cairo.

"Eventually, if we want the marginal producer to produce and help the world supply, then we need to give them a better price," Saudi Oil Minister Ali Naimi said.

But it was unclear how the group -- supplier of 40 percent of the world's crude -- could realize that target soon, given the lack of action at Saturday's meeting.

Some analysts questioned the wisdom of waiting in light of the current weak oil prices.

"Another dumb move by OPEC, unless of course they want lower crude oil prices," said Vincent Lauerman, OPEC expert and president of the Calgary, Canada-based consultancy Geopolitics Central.

Ahead of the meeting, the U.S. benchmark light, sweet crude futures contract settled a penny lower Friday at $54.43 in an abbreviated session on the New York Mercantile Exchange.

Others said the decision may have been a way for the group to push through a larger cut at the Algeria meeting.

Viewed in this light, the lack of a decision may be a strategic one aimed at preventing the group from suffering the same outcome it saw after the Oct. 24 Vienna meeting: Cut now and see prices fall again could further undercut its credibility, analysts said.

"They want to do everything they can to support prices, but do it in a way they can save face," said Phil Flynn, an oil analyst at Alaron Trading Corp. in Chicago. He expects the group to implement a cut of as much as 1.5 million barrels in Algeria next month.

If the Cairo gathering did not net a cut, it allowed the group to present a united front before a market that has recently been shrugging off their complaints about low prices.

Members were eager to brush aside persistent concerns that some countries fail to adhere to the production quotas OPEC has said it needs to be effective.

"We are assuming that everyone will be compliant -- hopefully 100 percent compliant," said Qatari Oil Minister Abdullah Bin Hamad al-Attiya. "Don't take me to the past, take me to the future."

In general, the oil ministers seemed optimistic about compliance with the previous round of cuts, announced in Vienna. Khelil put it at about 85 percent, others said 100 percent.

Venezuela has been one of the countries cited as being more liberal with its production -- a charge its oil minister denied on Saturday.

"Venezuela is fully compliant with the last cut decision in October," said Rafael Ramirez. "Venezuela's view is OPEC's view. We have to have a million barrels a day production (cut). But we have to wait for December."

Heading into the meeting, Khelil, the group's president, said a key aim was to assess the impact of previous reductions, while further studying the market and the impact the global economic meltdown was having on steadily falling oil demand.

He stressed the same point after the meeting, telling reporters that the current volatility merited a measure of caution and the need to wait until Algeria for a decision. The exit of speculators, who OPEC has said were the main reason behind the prices spikes earlier this year, will add some clarity to the oil market, he said.

"Now, we have real fundamentals," said Khelil, who added that the group is concerned about too much supply in the market and the difficulty some producers have in finding buyers.

Analysts said delaying a decision also gives prices room to deflate further, putting increased pressure on large nonmembers such as Russia to agree to join OPEC in any future production cuts while helping ensure compliance among its own members.

"It's easier to push other OPEC countries to comply if they start to see that yes, we could go lower," said Olivier Jakob of Petromatrix in Zug, Switzerland.

Russia has already indicated it backs OPEC's efforts to boost prices, though many in the market have questioned whether the oil giant would be willing to implement cuts of its own at a time when it sorely needs oil revenue.

Several OPEC ministers voiced hope that other oil producers would work more closely with the bloc, with Qatar's al-Attiya saying that "at the end of the day we need the help of everybody, including non-OPEC countries."

"Because if we produce oil and no one buys it, this is a concern. And this is what we're seeing today," he said.

Associated Press Writer Hadeel al-Shalchi contributed to this report.

OPEC oil ministers on Friday downplayed expectations of, but didn't dismiss outright, an immediate output cut as they faced a third test in as many months of their ability to engineer a rebound in oil prices.

The outcome of the hastily convened Cairo meeting Saturday, billed as a consultative gathering to assess the impact of earlier production cuts, likely hinges on a key issue with which the cartel has had a checkered past: unity.

Kuwaiti oil minister Mohammed Al-Aleem told reporters in Cairo that while the market was oversupplied, he believed there was "no need" for the Organization of Petroleum Exporting Countries to decide on cuts ahead of its regularly scheduled Dec. 17 meeting in Algeria.

But Rafael Ramirez, oil minister for price hawk Venezuela, later said the option remained to cut production by "at least 1 million barrels" at the weekend gathering. "Maybe it's necessary, a new cut," Ramirez said. He quickly added, thought, that such a decision could be taken now or next month.

The diverging takes highlighted the difficulty of the task facing producers of almost 40 percent of the world's oil.

"There is total confusion" among OPEC's 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. "These people ... really have no business model. They basically thrive when oil prices go up, and now they are crying uncle when prices go down."

And, down they have gone, in a financial avalanche triggered by demand destruction, itself sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states' government budgets.

Whereas crude stood at about $147 a barrel in mid-July, it now hovers about $90 lower. On Friday, the U.S. benchmark West Texas Intermediate crude for January delivery was trading at down about $3 per barrel at about $51.

"They (OPEC) simply don't react quick enough, and prices keep going down," said Vincent Lauerman, OPEC expert and president of Calgary, Canada-based consultancy Geopolitics Central.

This meeting will come down to what kingpin and traditional price dove Saudi Arabia wants, he said.

Saudi oil minister Ali al-Naimi told reporters answers would come on Saturday.

The cartel has already held one emergency meeting - on Oct. 24 in Vienna - to try to halt the slide in prices with an announcement of a 1.5 million barrel per day drop.

It failed to support prices, and the cartel cobbled together the Cairo gathering on the sidelines of the Organization of Arab Petroleum Exporting Countries' meeting.

But members have been circumspect about expectations, leading some to speculate OPEC is staying quiet to maintain the element of surprise.

"As long as they do a substantive cut, they may be getting ahead of the curve, and should be cutting enough to get ahead of demand destruction," said Lauerman, citing about 1 to 1.2 million as the magic number.

That has been the figure most readily cited by those nations proposing cuts, including Venezuela which, like fellow price hawk Iran, need crude of about $90 per barrel to meet current spending needs aimed in part at propping up its domestically unpopular regime.

The two have found support from non-OPEC oil giant, Russia. Its president, Dmitry Medvedev, said Thursday his country would cooperate with the group to support prices.

Other OPEC members, such as Nigeria and Ecuador, face budget problems too, making them reluctant to implement more cuts that might shrink revenues further.

Nigerian envoy, Odein Ajumogobia, said the ministers were "just going to exchange ideas and views" at the gathering.

Kuwait's al-Aleem said current low prices benefit neither consumers nor producers and could undercut investments in future projects - a scenario that could lead to another spike down the road.

"We think a decision could be taken, but I think it will happen in Algeria," he said.

OPEC's last round of cuts would put its total production at about 30.5 million barrels per day, according to the IEA.

Unlike many of their fellow members, the Saudis are better positioned to cope with the drop in prices. The International Monetary Fund estimates Riyadh needs crude in the range of about $50 per barrel for 2008 fiscal accounts to break even.

While al-Naimi refused to tip his hand, an indication of the Saudi thinking may have emerged earlier this month when, during the Group of 20 meeting in Washington, King Abdullah pledged the kingdom would do everything in its power to help the global economy recover.

Higher oil prices would undermine that promise.

Also unclear, after two earlier cuts failed to push prices higher, is what the group can do without prolonging the global economic downturn.

"I would play 'good cop' and not do anything," said Oppenheimer's Gheit. "If they are patient, they will be rewarded because you will see a precipitous drop in capital spending, and that will tighten the market, in itself."

But demand has shown little indication of rebounding soon, and global crude stockpiles are growing - as evidenced by a U.S. government report showing a surprisingly large 7 million barrel build in stocks last week.

Those factors argue against restraint if some in OPEC want crude back up to at least $70.

Even so, Algerian oil minister and OPEC president Chakib Khelil has urged a wait-and-see approach, saying that the group risks losing credibility if it enacts new cuts in Cairo only to find members were not complying with the Vienna decision.

Political considerations are also likely to factor prominently.

Saudi Arabia is a close U.S. ally in the Middle East, and is eager to see concerted Washington backing for peace efforts in the region.

One way of winning new support from the incoming administration of U.S. President-elect Barack Obama would be by tacitly working to undercut two of Washington's most strident foes, Venezuela and Iran. It would not be an onerous job for the Sunni Muslim Saudis, who have no great affection for Shiite Iran.

"Saudi Arabia is playing ball with the U.S.," said Gheit. "It is going to punish Venezuela. It is going to punish Russia. It is also going to curtail Iran."

AP Business Writer Adam Schreck contributed to this report.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Iran called on OPEC Saturday to cut production by a further 1 million to 1.5 million barrels per day when it meets in Cairo later this month, state television's Web site reported Saturday.

Iran's OPEC governor, Mohammad Ali Khatibi, said the cartel needs to act to slash output because demand for oil has declined due to the global financial meltdown.

OPEC, which produces about 40 percent of the world's crude oil, decided to cut production by 1.5 million barrels a day last month in response to a dramatic fall in oil prices from a record $147 in July to below $70 last month.

Despite the cut, oil prices have continued to decline. Light, sweet crude for December delivery fell $1.20 to settle at $57.04 a barrel on the New York Mercantile Exchange Friday.

Diving prices have forced OPEC to plan an extraordinary meeting in Cairo, scheduled for Nov. 29, to discuss the plunge.

"It would be better that, at the urgent meeting in Cairo, it (OPEC) decides to slash production by a further 1 to 1.5 million barrels per day in order to create a relative balance between supply and demand," Khatibi said.

Iran is afraid of the consequences of falling oil prices on its ailing economy. About 80 percent of Iran's public revenues come from oil exports and Iran's oil industry needs foreign investment to keep up production and export.

Khatibi said the continuing decline in oil prices means there is oversupply.

"The continuing fall in prices and increase in oil reserves by big industrial states shows there is oversupply. ... OPEC members have to remain committed to their quota obligations otherwise prices will keep diving," he added.

Iran, as OPEC's second largest oil exporter, has traditionally opposed any crude output increase by members, arguing that it would cause a fall in prices. It has also urged fellow OPEC members to respect their output quota to avoid a worsening of the oversupply.

Iran produces about 4 million barrels of oil per day. The country's recoverable oil reserves are estimated at 137 billion barrels -- or 12 percent -- of the world's overall reserves.

Iran also has the world's second largest natural gas reserves, estimated at 28 trillion cubic meters.