OPEC oil output cut may be just a question of time

LONDON, Sep 21 (Reuters) Oil's rapid descent to is ringing alarm bells in many OPEC countries and the question now is when, not if, the producer group will cut supplies.

Prices have fallen a barrel since the Organization of the Petroleum Exporting Countries agreed on Sept. 11 to hold output steady despite a sharp drop from a mid-July peak of .40.

Ministers voiced concern then, with U.S. crude oil at , about the speed of the decline and raised the prospect of braking production before the end of the year.

Noticeable for his reticence was Saudi Oil Minister Ali al-Naimi, who steers the policy of the world's biggest exporter.

But he broke his silence on Tuesday, saying that oil -- then around a barrel -- was at a reasonable price for producers and consumers.

''We're all trying to read the tea leaves now,'' said Mike Wittner of Calyon investment bank.

''If prices are 'reasonable', it's a carefully ambiguous remark that tells you little, because 'unreasonable' could be 50 cents lower or it could be lower.'' While OPEC has scrupulously avoided setting a target price to defend, some ministers have stated their preferred level.

For Iran's oil minister, Kazem Vaziri-Hameneh, a cut in supplies may already be overdue. He does not want to see OPEC's price basket drop below , which equates to U.S. crude at roughly .

OPEC's basket price -- a daily reference level based on the prices of 11 crudes -- now stands at .54.

Aside from cutting into petrodollar profits, a weakening oil price also erodes Tehran's political leverage in its dispute with the West over its atomic work, analysts said.

SAUDI ARABIA IN FOCUS OPEC has already built a case for cutting its output ceiling, which has stood at 28 million barrels per day since July 2005. It sees demand for its crude falling by 800,000 bpd in 2007 when supply surges from rival producers.

When the time does come to cut production, the focus will be on Saudi Arabia. The kingdom has been pumping enough oil to make up for shortfalls in members struggling to meet formal production limits, notably Venezuela and Indonesia.

But beyond saying the oil price must be sufficiently high to encourage investment in new supplies and low enough to allow growth in emerging economies, Riyadh has given no indication of what it will take to force a policy change.

''The most important gauge for this price is that it does not have a big negative impact on the global economy,'' the Saudi oil minister said on Tuesday.

Major customers of Saudi crude say there is no evidence yet of the kingdom cutting back production, which has been running around 9.1 million barrels per day (bpd).

''Our view is that the Saudis will start to trim quietly if U.S.

crude gets below ,'' said Wittner.

''But the deciding factor will be whether prices are headed down to a sensitive area with momentum.'' Others see a cut at a much lower price, a likely development if there is a resumption in the large part of Nigeria's output that has been blocked by militant attacks and pipeline leaks.

Nigeria estimates it is losing more than 800,000 bpd.

''If Brent crude oil slipped below they would cut. They will need to cut if Nigerian production comes back,'' said Deborah White, senior analyst at SG CIB.

Brent crude now stands a shade above .

''The Gulf producers are distressed but not panicking yet.

They don't want to come out so soon after an OPEC meeting and say they're going to cut production,'' said one analyst, who declined to be named.

''That makes them look indecisive.'' For a FACTBOX of OPEC ministers' statements on the oil price, double click on [ID:nL21436402] REUTERS PKS PM1953