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OIL: Prices Up as OPEC Considers Yet Another Production Cut

Humberto Márquez

CARACAS, May 9 2003 (IPS) - OPEC is looking at cutting oil production in order to shore up prices, prompting a nearly three-percent jump on Friday alone after a two-month downslide that kept pace with the advance of U.S. and British forces in Iraq.

The price of North Sea Brent, a benchmark crude, rose 70 cents on the dollar in 24 hours on the London exchange, ending the week at 24.65 dollars per 159-litre barrel.

West Texas Intermediate (WTI), the U.S. reference sweet, light petroleum, saw a 79-cent rise on the New York exchange, closing Friday at 27.77 dollars per barrel.

The slight increase in oil prices came in response to the statement Friday by Abdullah al-Attiyah, president of OPEC (Organisation of Petroleum Exporting Countries): "There is too much oil on the market and that has a bad influence on prices which have fallen dramatically."

"OPEC is going to need to make new cuts in its production," said Al-Attiyah, who is also Qatar’s oil minister.

He told the French newspaper ‘Le Monde’ that the organisation’s members will decide at their Jun. 11 meeting in Doha just how much they will reduce output.

Also invited to the meeting in the Qatar capital, said the OPEC president, are independent oil exporting nations, like Angola, Mexico, Norway and Russia, in order to coordinate actions in hopes of steadying the world petroleum markets.

OPEC cannot stabilise the market alone, he said. The help of the non-member exporters is needed, and action must be taken "before it is too late."

The 11 members of OPEC are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

Petroleum inventories worldwide were reinforced prior to the Mar. 20 U.S.-led invasion of Iraq, which pushed up prices to 35 dollars a barrel for WTI and 30 dollars for Brent.

But the dominance of the U.S. and British troops against the Iraqi forces, and lack of any major damage to oil facilities in Iraq or neighbouring countries eased fears of a potential oil shortage, and prices have fallen nearly 30 percent since then.

OPEC found that there was an overproduction of at least two million barrels of crude per day, above the total 24.5-million-barrel output distributed in quotas among 10 member countries.

Iraq had been excluded from the quota-production system because its output was controlled by the United Nations-run "oil-for-food programme", established in the context of the embargo imposed against Iraq for its 1990 invasion of Kuwait.

OPEC controls between 35 and 40 percent of the world oil demand, which averages around 77 million barrels a day.

The cartel cut output in the first quarter of 2002 in a bid to keep oil prices within the 22 to 28 dollar price band it considers ideal "for exporters and consumers alike."

But the spigots were reopened after prices continued to rise and market demand increased at the end of the year, due to the winds of war in Iraq and to the production gap created by the two-month general strike that nearly paralysed Venezuela’s oil industry.

On Apr. 24, OPEC adopted a decision that sent mixed signals to the oil markets.

The organisation implicitly recognised that its members were violating their quotas when it announced that it would reduce output by imposing discipline, but at the same time it decided to increase the quotas in June for the 10 countries present at the conference.

The idea to "clean up" its participation in global oil supplies thus overlapped with efforts to capture segments of the market that in the near future Iraq might try to win or recuperate under U.S. administration.

Also on Friday, Washington presented a draft resolution to the UN Security Council seeking removal of the sanctions imposed during the first Persian Gulf War.

The initiative is an exception to the arms embargo and would authorise Iraq to obtain funds through oil sales for rebuilding the country.

Despite OPEC’s April decision to reduce output, crude prices fell during the first few days of May, with the cartel’s seven benchmark crudes selling at an average of 24 dollars a barrel, while Brent brought in 23.49 dollars and WTI 25.76 dollars per barrel.

This week, prices recovered a bit: the OPEC seven sold at 24.35 dollars, Brent at 24 dollars and WTI at 26.12 dollars per barrel, reported Venezuela’s Energy Ministry.

The Venezuelan communiqué attributes the increase to the decline of petroleum reserves in the United States, the world’s leading oil consumer.

However, on Friday it was the simple words of the OPEC chief – " There is too much oil on the market" – that were able to mobilise the market, pushing prices upwards.