Expansionary Institute

Michael Zey
futurist3000@aol.com

By BRUCE STANLEY
.c The Associated Press

 
VIENNA, Austria (AP) - OPEC members worked toward a consensus Tuesday to cut crude oil shipments by about 5 percent in an effort to shore up prices amid worries about a U.S. economic slowdown and the possibility of weaker demand for oil in the spring.

Although some group members have argued for deeper cuts in supply, the Organization of Petroleum Exporting Countries appeared to be leaning toward curtailing supplies by 1.5 million barrels a day.

A Nigerian oil industry source, speaking on condition of anonymity, said sentiment has ``crystallized'' around a decrease of this size.

Saudi Arabia, OPEC's largest producer, is among those arguing for such a cut. The action is need to ensure that the average price of OPEC crude remains at around $25 a barrel, said Saudi Arabian Oil Minister Ali Naimi, speaking ahead of a formal meeting of OPEC oil ministers on Wednesday.

``We want the market to be in a stable mode. Therefore we need to take a reduction. The size of the reduction will probably be around a million and a half'' barrels a day, Naimi said late Monday.

Iran, OPEC's No. 2 producer, had preferred a bigger cut. However, an Iranian source, speaking on condition of anonymity, suggested Tuesday that his country would moderate its demand and go along with the Saudis and others.

The Iranian expression of support eased fears of a possible disagreement over strategy when OPEC's 11 members meet to assess market conditions and set their policy on future output.

In Venezuela, the cartel's third-biggest producer, President Hugo Chavez on Monday applauded OPEC's anticipated decision to curb production.

Analysts say that some cut in output is a foregone conclusion.

The possible impact on consumers remains unclear, primarily because Iraq, an important OPEC member, continues to withhold the bulk of its crude from market. Iraq is embroiled in a pricing dispute with the United Nations, which regulates all Iraqi exports.

Although Iraq is an OPEC member, it has not participated in the cartel's production agreements since the Persian Gulf War.

Naimi suggested that OPEC's other 10 members would trim output regardless of what Iraq does. He indicated, however, that they would make up for any shortfall created by an Iraqi withdrawal from the market. Iraq has slashed its crude exports by approximately 1.7 million barrels a day, shipping just 600,000 barrels a day in December.

OPEC supplies almost 40 percent of the world's crude, and it wants to keep prices firm - and revenues flowing - even if the U.S. slowdown infects the economies of other major oil-importing nations.

OPEC members are advocating decreasing their production despite requests by the United States and the European Union for them to stick to their current quota of 26.7 million barrels a day.

U.S. Energy Secretary Bill Richardson, who traveled to the Persian Gulf during the weekend to lobby OPEC members against cutting output, said the group had made no final decision on the size of the expected decrease.

``If OPEC decides to make cuts, we hope it will act in a cautious and measured fashion,'' he told reporters in London.

The European Commission, the executive arm of the EU, also urged the cartel not to curb production.

``The fear is that this action is a bit hasty,'' said EU spokesman Gilles Gantelet. ``This gives rise to a yo-yo effect (in prices).''

However, OPEC is haunted by recent memories of oversupply and plunging prices for crude. It is eager to act now, with the U.S. economy slowing, and before demand softens in the early spring due to the end of seasonal purchases of heating oil.

Analysts say OPEC is eager to avoid repeating its mistake of December 1997, when it decided to boost output shortly before the Asian financial crisis throttled demand. Prices bottomed out a year later at around $10 a barrel.

Oil prices peaked at more than $35 last year, then drifted lower before rebounding this month together with other energy products.

February contracts of North Sea Brent, the European benchmark crude, was trading Tuesday at $26.34 a barrel, up 16 cents on the International Petroleum Exchange in London. Light, sweet crude ended Friday at $30.05 a barrel on the New York Mercantile Exchange. NYMEX was closed for trading Monday due to a national holiday.

OPEC's meeting itself is evidence of the group's concern about market conditions.

It comes just two months after OPEC's previous session in Vienna. At that November meeting, oil ministers decided to keep OPEC's output steady after having increased production by a total of 3.7 million barrels a day during 2000.

The United States was a major factor in those earlier increases. As the world's No. 1 consumer of crude, the United States was alarmed as the price of oil approached $40 a barrel, and it lobbied hard for OPEC to pump more.

AP-NY-01-16-01 0756EST

Copyright 2001 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press.