Oct. 23 (Bloomberg) -- Crude oil rebounded from a 16-month low after Iran said OPEC should cut production by 2 million barrels a day to stem the slump in prices.

Oil rose after Iranian Oil Minister Gholamhossein Nozari said OPEC must ``balance'' the market after prices tumbled 53 percent since a record high in July. Analysts in a Bloomberg survey expect OPEC to reduce output by at least 1 million barrels a day when the group meets in Vienna tomorrow.

``Between now and the end of the year OPEC will need to cut production by 2 million barrels a day in order to stabilize falling oil prices,'' Johannes Benigni, chief executive officer of Vienna-based JBC Energy, said today. ``One million barrels a day will be cut on Friday effective from December, with a promise to do more at the December meeting, if needed.''

Crude oil for December delivery rose as much as $1.75, or 2.6 percent, to $68.50 a barrel on the New York Mercantile Exchange, and traded at $67.17 at 12:31 p.m. London time. Yesterday, futures fell $5.43 to $66.75, the lowest settlement since June 13, 2007.

Prices have more than halved since rising to a record $147.27 on July 11.

U.S. fuel demand during the past four weeks was down 8.5 percent from a year ago, according to an Energy Department report yesterday. Gasoline demand averaged 8.8 million barrels a day in the past four weeks, down 4.3 percent from the same period last year, the report showed.

``OPEC's major problem is that they have never faced a demand-led surplus before,'' David Hufton of London-based PVM Oil Associates Ltd. said in an e-mailed note today. ``Cutting supply when the other leg is being cut off faster does not restore the balance.''

High Inventories

Brent crude oil for December settlement rose as much as $1.81, or 2.8 percent, to $66.33 a barrel on London's ICE Futures Europe exchange. It traded at $65.53 at 11:41 a.m. local time.

The Organization of Petroleum Exporting Countries, producer of 40 percent of the world's oil, will review production targets for the fourth quarter in Vienna tomorrow. The group will ``most probably'' decide to trim output, OPEC's president, Chakib Khelil, said.

``There is an excess of supply definitely, there's an excess of stocks in the market,'' Khelil, who is also Algeria's oil minister, told reporters in Vienna today. ``We have a recession, we have falling demand.''

U.S. crude oil inventories rose 3.18 million barrels to 311.4 million barrels, yesterday's report showed. It was the fourth-straight increase. A gain of 2.65 million barrels was forecast, according to the median of responses in a Bloomberg News survey.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Last Updated: October 23, 2008 07:35 EDT