By Barbara Lewis and Simon Webb
LONDON/DUBAI (Reuters) - Bloated inventories and the risk of a price slide will trouble OPEC ministers when they meet in Vienna next week, but oil at close to $70 a barrel is expected to convince the group to hold output steady for now.
Confidence across financial markets the global economy will return to growth has driven an oil price rally for much of this year, even though fuel demand has shown little sign of emerging from recession.
Some analysts have said the Organization of the Petroleum Exporting Countries might have to address when to cut supplies even if it is not yet, but OPEC delegates and other insiders have been virtually unanimous in saying there is no need for a formal change at their September 9 meeting.
"Really the global oil system is functioning well," said Sadad al-Husseini, a former top official at Saudi state oil firm Aramco.
"There's a lot of oil available. The industry is functioning with a good safe capacity margin. There is a high price. It's the best of all worlds, so there's no need to change it."
Oil rose to a 2009 high of $75 at the end of August, a price targeted by top oil exporter Saudi Arabia and other OPEC members as enough to encourage investment in future supply.
It has since only fallen back slightly to just below $70, more than double last December's low of $32.40.
The robust price has bemused some in OPEC, but they have trusted to the outbreak of trader optimism to support prices until higher demand during the winter heating season can eat away inventories.
"We should be headed into higher seasonal demand," Husseini said. "There really is no panic."
A senior OPEC delegate from the influential Gulf region said OPEC would call on its members to respect production curbs already in place, but did not expect new ceilings to be agreed.
"According to current circumstances of supply and demand, possible demand during winter and the start of an economic recovery, they might keep things as they are until the next meeting," the delegate said.
Compliance with curbs reached a record of around 80 percent in March and April this year, but has since slipped back to below 70 percent of the cuts of 4.2 million barrels per day agreed since September last year.
At the same time, fuel demand next year is only expected to grow gradually next year after two years of contraction, according to major forecasters, including OPEC, and oil stocks have declined less quickly than OPEC had expected.
"I think a cut is on the table. Maybe not for this meeting but they may need to discuss here how they cut later," said David Kirsch, director of market intelligence services at PFC Energy in Washington.
"Even if inventories fall to the levels they want by the end of the first quarter, they will still be looking at a pretty large stock build in the second quarter of next year, and that's got to be a worry for them."
In its latest monthly report, the International Energy Agency said stocks in developed countries stood at around 61.7 days of forward cover at the end of June, unchanged from the previous month and only just below a peak of 62.4 days at the end of March, which was the highest since 1993.
Some producers have a greater need for lower stocks and higher prices than others.
Gulf exporters Saudi Arabia and Kuwait said earlier in the year they were comfortable with prices at $50, a level OPEC as a whole said it could tolerate in March, when the world economy was weaker.
Saudi Arabia has taken the biggest share of output cuts while countenancing sliding discipline from other members, notably from OPEC president Angola.
The different levels of adherence complicate the task of any new output cut.
"Maybe we won't see a pro-rata cut. Maybe some kind of different formula where Gulf Arab members only cut barrels with commitment from other members to do so," said Kirsch.
Apart from varied discipline, OPEC, which supplies more than one third of the world's oil, also faces the challenge of non-OPEC producers. They have ignored OPEC's appeals to join in attempts to bolster the oil price.
Kirsch said that supply from non-OPEC members, especially Russia, had been surprisingly strong, contributing to bearish supply and demand fundamentals.
Russia's output hit a record high in August of nearly 10 million bpd.
It is the largest non-OPEC producer, but its exports still lag Saudi Arabia after years of under investment.
Together with other observer nations, Russia is not invited to next week's OPEC meeting.