OPEC's Price Mechanism Won't Be Activated Feb - Sources

sg.biz.yahoo.com Friday February 21, 10:20 PM

LONDON (Dow Jones)--The Organization of Petroleum Countries won't activate its price-band mechanism and hike output under current conditions if its basket price remains above $28.00 a barrel for 20 consecutive trading days, OPEC sources said Friday.

Feb. 28 would be the 20th straight trading day since the clock started ticking on the group's price mechanism.

But an OPEC official said "the mechanism will only be used as a (price) reference at this time."

Thursday, OPEC's basket price was $31.48/bbl, above the group's preferred $22.00-$28.00/bbl price range.

Under the terms of OPEC's price band mechanism, the group has pledged to raise output by 500,000 b/d if its basket price stays above $28.00/bbl for 20 consecutive days.

The group has also said it will slash output by 500,000 b/d if the oil price stays under $22.00/bbl for 10 straight trading days.

But OPEC sources say there is little the group can do now to take the heat out of high oil prices which, they say, are mainly due to a political premium based on a possible U.S.-led military attack on Iraq.

"There is not a lot we (OPEC) can do now to bring prices down...by putting more oil into the market in January this didn't bring prices back into the range, " one senior OPEC source said.

At an emergency meeting in January, OPEC, excluding Iraq, pledged to raise its output ceiling by 1.5 million b/d to 24.5 million b/d, effective Feb. 1, in an attempt to lower high crude prices.

But oil prices have remained high as an attack on Iraq has become more probable and a nationwide strike in Venezuela paralyzed the country's oil output.

-By Sally Jones, Dow Jones Newswires; 44-20-7842-9347; sally.jones@dowjones.com