OPEC producers remained divided on Monday over whether or not to bow to demands from consumer nations and open the taps to rein in runaway oil prices.
The Organization of the Petroleum Exporting Countries, meeting on Wednesday, is under pressure to reverse or postpone scheduled supply cuts that recently forced U.S. oil prices to a 13-year peak.
Some in OPEC admit prices are uncomfortably high and favor postponing a February deal agreed in Algiers to cut supplies in April. Others blame speculative hedge funds for inflaming the market and worry they are showing signs of preparing to exit the market en masse, causing a price slump.
"The Algeria agreement can be reviewed, it is not compulsory," said UAE oil minister Obaid al-Nasseri. "There are different opinions that will be discussed including postponing implementing the Algeria agreement."
OPEC's February deal to cut production by a million barrels a day from April 1 sent U.S. prices roaring two weeks ago above $38 a barrel, the highest close since the 1990-1991 Gulf War.
But prices fell $2.35 a barrel last week after U.S. crude stocks recorded a strong 7.5-million-barrel build, lifting inventories 12 million barrels, or four percent, above year-ago levels.
U.S. crude eased another 28 cents to $35.45 a barrel on Monday.
"It's our position that in the second quarter there will be a reduction in demand so we will work for the cut in production to support prices," said Algerian Oil Minister Chakib Khelil.
The United States fears the cartel's impressive record of market management is posing a growing threat to economic recovery.
The Bush administration changed policy last week, announcing publicly for the first time that it was trying to convince OPEC to open the taps.
U.S. investment bank Goldman Sachs released a report estimating that oil's price surge may subtract 0.3 percent this year from the GDP of the world's seven leading economies.
"The impact of higher oil prices may have been masked so far by the boost to real incomes from U.S. tax cuts — but as these fade in the second half, the impact of continued high prices is likely to come to the fore," Goldman said.
Some in OPEC are worried that slower seasonal second quarter demand is already allowing world oil inventories to build more quickly than it would like.
They say prices remain higher than supply-demand fundamentals would otherwise warrant because speculative hedge funds hold record positions on U.S. oil futures contracts.
Spurred by unrelenting Chinese fuel import growth and worries about Middle East security, the funds have taken the view this year that oil is a good bet.
OPEC fears a heavier-than-normal second quarter stockbuild could cause an oil price avalanche as the funds take profits.
"Unless OPEC can come out with strong evidence that they can effectively curtail production in the coming weeks, this trend is likely to likely to be amplified as more funds rush to the exit door," said Washington consultancy PFC Energy of the outlook for prices.
So far OPEC has pushed through only a fraction of its planned April cuts. It was already leaking heavily in excess of official March supply quotas.
Geneva consultancy Petrologistics estimates the group will pump 25.63 million barrels a day in March, compared to official limits of 24.5 million bpd that are due to go down to 23.5 million in April.
