OPEC decides to cut oil production

The Dallas Morning News Last Updated: April 24, 2003

The Organization of the Petroleum Exporting Countries surprised oil traders Thursday, deciding at an emergency meeting to cut production but raise quotas to keep oil supplies plentiful.

The 11-member oil cartel, which pumps a third of the world's oil, was expected to trim some production in an effort to stem a postwar slide in oil prices.

The move should offer some relief to motorists this summer, because OPEC didn't cut production to the point that it would push prices above $30 a barrel and lead to higher gasoline prices.

"This is all extremely good long-term news," said Peyton Feltus, president of Randolph Risk Management. "If we continue to see that we're moving closer and closer to stability, pump prices will be more reminiscent of years past."

Thursday's actions could mean a gasoline price decrease of between 5 and 6 cents a gallon at the pump in the United States, according to George Gaspar, who follows the oil market for Robert W. Baird & Co.

Without the OPEC decision to cut production, gas prices might have fallen even more as additional oil came onto the world markets, he said.

In addition to the OPEC cuts, other things have an impact on pump prices, he said. For example, U.S. gasoline inventories now are about 4.6% lower than a year ago, thanks in part to disruption in the Venezuelan oil industry. He also said that pump price patterns will change next month, when the summer driving season begins in the U.S.

The OPEC decision will have the largest effect on Saudi Arabia, the world's largest oil producer, which was among key producers that had opened their spigots to prevent supply shortages from a strike in Venezuela and war with Iraq.

Some of Iraq's oil fields started pumping again this week, but exports aren't likely to resume until June. OPEC is expected to make further cuts as significant Iraqi exports return to the market.

"This is an initial step to throttle back the volumes that were being produced as a result of the conflict and as a result of the heating season," said John Gerdes, an analyst at Southwest Securities.

Though oil prices moved above $30 per barrel last week for the first time since the war started, news of higher imports sent prices down 12% this week.

Gasoline prices had been dropping steadily since the war with Iraq started but threatened to rise with higher crude oil prices as the summer driving season approached.

Many analysts expect oil prices to remain well below $30 per barrel, likely in the low to mid-20s, which could allow gasoline prices to fall further.

Crude oil closed 13 cents higher Thursday, at $26.78 per barrel, on the New York Mercantile Exchange.

OPEC members, which control three-fourths of the world's proven oil reserves, say they want to manage production to keep prices between $22 and $28 a barrel.

Avrum D. Lank of the Journal Sentinel staff contributed to this report.