Opec’s monthly report, published today, hints that the oil cartel should err on the side of further reducing its output.

Carola Hoyos writes that Opec’s pessimistic view of the world’s need for its oil was “in abundant display” in the report. Indeed, its featured article was titled “Economic uncertainties still overshadowing the oil market”.

More from Carola:

The report, compiled by analysts of Opec’s secretariat, makes no recommendation, but is influential in both illustrating and shaping Opec ministers’ opinions.

Its economic assessment, though gloomy, still leaves Opec with two main options: To announce a new round of production reductions, or to pledge even better compliance with the 4.2m barrels a day the group has already said it will cut. Opec’s compliance so far is 80 per cent, substantially higher than in the past.

There have been a myriad of warnings in recent months that the downturn in oil prices will store up a price rise – at a time when the world economy may not be able to cope. Yesterday the US energy secretary even asked Opec to avoid production cuts for this reason. But ironically, a key threat to the world’s non-Opec supply – which we saw this morning is predicted to see no growth this year – is low prices. Many oil sources are just not efficient at a price below $50 or even $40 a barrel.

The biggest oil companies are just about maintaining their investment levels for this year – although they’re clearly trying to drive down their own costs. Some Opec members are not having so much luck.

And even the outer tier of the big oil companies are finding investment difficult in the current environment. Conoco Phillips this week confirmed it would reduce its spending on projects by $2.8bn this year. At the very small end of the scale, wells that pump 15 barrels a day or less – which provide a fifth of the US production – are also struggling.

Demand was revised down by a further 300,000 bpd to a total decrease of 1.5m bpd  for 2009, but the IEA said this was more than offset by non-Opec supply falling 400,000. The organisation repeated its caution against too much focus on demand-side weakness, saying tighter credit and technical problems on the supply side should also be considered.

More from Carola Hoyos:

The world will have to rely on the Opec oil cartel alone for any increase in oil production this year because countries outside the group will fail to grow their supply, the developed world’s energy watchdog concluded today.

Continue reading: “IEA: Non-Opec growth will be zero in 2009; demand cut further”