May 14 (Bloomberg) -- The Organization of Petroleum Exporting Countries will eventually have to cut production of lower-quality crude as warmer weather in the northern hemisphere reduces demand for oil, Iran's OPEC governor said today.

``If OPEC isn't cutting production officially, they will do it in secret because the price is so high'' and supply cuts would not be popular with consuming nations, Hossein Kazempour Ardebili said in a phone interview from Tehran. ``Cuts will start on a voluntary basis, and will have to become formalized once secondary sources make the numbers clear.''

Iran's crude oils include some of the heaviest and most sulfurous grades sold internationally, making them less desired by refiners at a time when global oil demand is in its weakest quarter of the year. The country is reviewing a proposal to reduce crude production, President Mahmoud Ahmadinejad told the state-run Fars news agency yesterday.

``In effect they're talking up their own book,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``I don't think it signals any change on the part of OPEC.''

Oil prices have more than doubled in the past year, boosted by investors buying commodities as a hedge against a weakening U.S. dollar and by falling supply in Nigeria and elsewhere. Oil reached a record $126.98 a barrel yesterday partly on concern U.S. refiners may fail to meet demand for fuels. Oil futures in New York traded at $125.70 a barrel at 1:32 p.m. London time.

`No Demand'

Iran more than doubled the amount of its heavy crude, which is sulfur-rich and not desired by refiners, in storage on tankers, people familiar with the situation said May 2. Those 10 tankers hold at least 20 million barrels of oil, equal to about 5 days of the country's output, said the people, who asked not to be identified because the information wasn't public.

``The heavier the crude you have, the harder it is to sell because there is no demand, and the price differential between heavy and light crudes widens during the summer,'' Kazempour said. ``I am sure that other countries - Kuwait, the United Arab Emirates, Saudi Arabia - will also cut sooner or later.''

The official selling price for Iran Heavy, one of the country's main export crude oils, has fallen relative to other price benchmarks. Deliveries of Iran Heavy to Europe are priced at a discount of $8.80 a barrel to Brent futures prices for June deliveries, versus a smaller discount of $4 for deliveries made in March, according to Bloomberg data.

Oversupply

``There are a lot of signals that there's too much heavy sour crude out there,'' said Wittner at Societe Generale. ``I don't see OPEC cutting formally between now and the coming meeting, but informal trimming? Sure. The Saudis have been trimming back for the past two months.''

OPEC, which supplies more than 40 percent of the world's oil, refrained from officially raising or lowering oil output targets at its past three meetings on March 5, Feb. 1 and Dec. 5, saying supply was adequate. OPEC oil ministers have so far been adamant there is no need for any change in official policy before the next scheduled gathering in Vienna on Sept. 9.

OPEC's last production increase, of 500,000 barrels a day, was agreed in September last year, and took effect on Nov. 1. The 13-member group pumped 32.1 million barrels of crude oil a day in April, according to Bloomberg estimates.

Analysts aren't convinced that an OPEC-wide production cutback is likely with prices trading around $125 a barrel.

``If they do reconvene before September, formally or by a teleconference, it will be to consider revising output upwards,'' said Harry Tchilinguirian, an analyst at BNP Paribas SA in London.

U.S. President George W. Bush is heading to Saudi Arabia, the world's largest oil exporter, at the end of this week, where he will raise concerns about high oil prices during his meetings with King Abdullah.

Some OPEC officials are expected to attend the World Petroleum Congress in Madrid from June 29 through to July 3.

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net

Last Updated: May 14, 2008 08:49 EDT