Opec prepared to cut production to rein in oil price

April 23, 2003 By <a href=www.businessreport.co.za>Sapa-AFP

Vienna - Wary of a glut on the world oil market, Opec is ready to cut production to ensure oil prices remain in its target range of $22-$28 a barrel, Opec ministers said upon arriving for a meeting of the powerful cartel.

"Tomorrow we will make sure we keep the market where it is in the band," Saudi Arabian oil minister Ali al-Nuaimi told journalists in Vienna, a day ahead of a meeting in the Austrian capital of the 11-nation Organisation of Petroleum Exporting Countries.

"We are concerned if we don't take some steps that an oil glut may form in two, three months," Al-Nouaimi said.

He did not provide details but an Opec source had said Tuesday that the cartel was looking to cut production in order to keep oil prices from falling too far and would call on its members to respect the 24.5 million barrels per day (bpd) production quota, which is currently being exceeded by some two million bpd.

Opec should move first by getting its members to respect the quota, United Arab Emirates (UAE) Oil Minister Obeid bin Saif al-Nasseri said Wednesday.

"I think we have to tackle first compliance, then we shall see if there is a need to cut," he said upon arriving in Vienna.

"Obviously there is oversupply in the market," Al-Nasseri said.

"I think we have to discuss the situation first and analyze the size of supply in the market then we have to take the right action," he said.

Opec had announced in January an output increase, raising its combined ceiling by 6.5 percent to 24.5 million bpd, to curb a surge in prices triggered by a strike in Venezuela and the threat of war in Iraq.

Opec is producing some two million bpd over this quota, ministers have said.

Al-Nouaimi said that if the cartel had not increased production beyond even the quota as war with Iraq grew nearer "prices would have shot up."

He said that "you have to give Opec some credit, a very big credit," recalling that analysts had feared as the war approached in March that prices could shoot to $100 a barrel . In fact they had stayed below $40 a barrel.

"Opec is healthy," Al-Nouaimi said.

The problem now is that prices are falling, although they are still in the high range of the band.

Oil prices were slightly firmer in Asian trading Wednesday with the market dominated by uncertainty over whether OPEC would cut output quotas, dealers said.

In Singapore, the benchmark New York light sweet crude contract for June delivery was being traded at $28.07 a barrel in after-hours trading, up from its close of $27.99 in New York Tuesday.

"There is no clear sign about what OPEC will decide to do," a dealer with a Singapore trading firm said.

A part of the uncertainty is determining when Iraqi oil exports are most likely to resume and how seriously the mystery virus SARS will affect the already sluggish world economy.

There are also fresh concerns over supplies from Nigeria, where violence has flared following a disputed presidential election.

Nigerian soldiers shot dead eight opposition supporters after coming under fire during an election-day protest at the weekend, a police spokesman told AFP on Tuesday.

Last month around a third of all Nigeria's oil exports were halted due to civil and political unrest.

Dealers said crude prices could fall to $26-$27 a barrel if OPEC decided to keep production levels at current levels.

In any case, OPEC member Iraq will not be represented at Thursday's meeting.

Iraq's seat will be vacant as the United States has chosen not to appoint a representative to attend, the State Department said in Washington Tuesday.

"Coalition governments will not take any actions that would prejudice the decisions of any future government and have taken no action with respect to Iraq's participation in OPEC which is an issue for the future Iraqi government," said Lynn Cassel, a department spokeswoman. - Sapa-AFP