OPEC now to weigh cutting oil production

Tuesday, April 8, 2003 12:00AM EDT News observer From Wire Reports

PARIS -- The Organization of Petroleum Exporting Countries will hold a special meeting to consider a production cut, after a 30 percent drop in oil prices caused by the progress of the U.S.-led coalition in Iraq.

"The market is facing a glut, not a shortage," OPEC President Abdullah bin Hamad al-Attiyah, who is also Qatar's oil minister, said. "The market is full of oil," he said in announcing the April 24 meeting.

Oil prices have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the war began in Iraq. Contracts for May delivery fell 66 cents Monday to $27.96 barrel on the New York Mercantile Exchange. Crude prices have tumbled 30 percent from a 12-year high of $39.99 a barrel Feb. 27

Only last month, OPEC signaled that it would pump more oil to make up for any supply disruption caused by hostilities in Iraq. Although members agreed in March to stick with their production target of 24.5 million barrels a day, some analysts say that rampant quota-busting has boosted OPEC's current output to about 27 million barrels a day.

Kevin Norrish, head of commodities research at Barclays Capital, said OPEC is right to be concerned about weak prices.

Saudi Arabia, the group's biggest member, has made "a massive increase" in output, while exports from Venezuela are growing after the recent collapse there of a nationwide strike. Output in Nigeria is starting to recover from disruptions caused by social unrest, and Iraq will eventually resume production, Norrish said.

Demand typically falls in the second quarter because of declining sales of winter heating oil in the Northern Hemisphere.

This year, springtime demand is expected to fall more sharply than usual. With a wartime supply shortage looking unlikely, oil-importing countries will stop buying crude for their strategic reserves, Norrish said.

"I think OPEC is correct to identify the possibility of a sharp fall," he said. "They're being pre-emptive because once the market starts to get away from them, it could be very difficult to bring it back."