OPEC sees further action if output 'freeze' deal holds

By Marianna Parraga and Ron Bousso

(Reuters) - The world's biggest oil producers may consider "other steps" to eliminate a persistent global oversupply if a recent deal to freeze current output holds firm for several months, the top official of the Organization of the Petroleum Exporting Countries said on Monday.

OPEC Secretary-General Abdullah al-Badri reiterated the group's readiness to work with non-OPEC producers to tackle a supply glut that has knocked prices to their lowest in over a decade. He told the IHS CERAWeek conference in Houston that the tentative pact to freeze output reached last week between Saudi Arabia, Russia, Venezuela and Qatar was just a start.

Al-Badri admitted the oil cartel had not expected prices to fall so sharply since the group decided in late 2014 not to cut output in the face of rising global supplies, fuelled in large part by the fast growth of the U.S. shale production.

"This cycle is very nasty," Badri said.

He said OPEC had also held talks with other key producers including Brazil, China, Oman and Mexico on a possible freeze.

Other steps could include a production cut.

"Let us freeze production... If this is successful we can take other steps in the future," Badri said. Parties must first manage to cap output levels for three to four months, he added.

He nevertheless cautioned that when oil prices recover from their current levels in the mid-$30 per barrel to around $60 per barrel, shale producers would quickly start drilling again, capping any gains.

Global production exceeded demand by as much as 2 million barrels per day last year. A gradual decline in output due to lower investment is expected to balance the market in early 2017, according to the International Energy Agency.

However, a huge build in global oil inventories, which Badri said has reached 350 million barrels, means it will take longer for prices to recover.

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Badri was confident that OPEC still has a vital role in the global oil market.

"We are not dead. We are alive and alive and alive for many years more," he told reporters.

But he underlined that understanding between OPEC and non-OPEC producers is increasingly necessary to balance the market.

Addressing a room filled with hundreds of global oil executives, Badri said he was willing to speak with U.S. officials about the collapse in oil prices.

The rout in prices of more than 70 percent in 20 months, is not the same as oil's previous boom-bust cycles, he said.

"I don't know how we are going to live together," Badri said of the once booming shale oil sector. "If prices will go up in 2017 or 2018, the price rally will be capped by U.S. shale oil. That's what is different this time."

Any deal on a production freeze would be tough to implement. Iran, which has pledged to increase output sharply since sanctions were lifted last month, has yet to formally sign on to the agreement, leaving its implementation uncertain.

The current oil price slump has been longer and deeper than most energy professionals and analysts had anticipated, but already some officials are growing concerned that the deep cuts in capital spending - for two years in a row - risk leaving the world short of crude oil several years down the road.

"This is a seed for a very high price in the future," Badri said.

(Reporting by CERAWeek Team; Editing by Chizu Nomiyama and Marguerita Choy)