OPEC expected to stick with current oil production cuts when ministers meet in Vienna

Posted 3:13PM on Tuesday 12th March 2002 ( 23 years ago )

LONDON - With oil prices at their highest levels in six months, OPEC is expected to stick with its latest cuts in crude production when the cartel's representatives meet Friday to assess market conditions. Signs of a resurgent U.S. economy and mounting tensions in the Middle East have triggered a change in market sentiment in recent weeks, and analysts said Tuesday that the Organization of Petroleum Exporting Countries is unlikely to adjust output at a time when its policy of incremental production cuts appears to be paying off. "I don't see OPEC fiddling with quotas whatsoever," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney. Still, the reliability of crude supplies from Iraq, normally one of OPEC's biggest producers, remains uncertain, and the global economic recovery has yet to take hold. The price for OPEC's benchmark crude reached $22.44 a barrel Monday, the first time since Sept. 24 that it has exceeded $22 -- the group's minimum desired price. The International Energy Agency said in its latest monthly oil report that prices should strengthen further as markets tighten. Consumers are already feeling the impact. U.S. retail gasoline prices jumped by an average of 8.8 cents to nearly $1.24 a gallon in the last two weeks -- the biggest increase in nearly a year, according to the Lundberg survey of 8,000 gas stations nationwide. In Britain, the Royal Dutch Shell Group of Cos. and supermarket chain Tesco PLC raised pump prices at their filling stations Tuesday. In a veiled warning to OPEC, the International Energy Agency said that too sharp an increase in crude prices could choke off economic recovery, especially in poorer regions. "Producers need to anticipate developments to avoid over-tightening the market and thereby feeding cyclical instability," the agency said. The Paris-based energy agency is the energy watchdog for the Organization for Economic Cooperation and Development, a group of the richest oil-importing nations. OPEC's 11 members produced 24.9 million barrels of oil a day in February, the agency said, or about one-third of the world oil supplies. To try to shore up prices, the group's members, excluding Iraq, have trimmed 5 million barrels from their daily output quotas in a series of cuts beginning in October 2000. The most recent cut, of 1.5 million barrels a day, took effect Jan. 1 and is to last for six months. United Arab Emirates Oil Minister Obaid Al-Nasseri said this week that OPEC would most likely maintain its current quota of 21.7 million barrels a day when its representatives gathered Friday at the group's headquarters in Vienna, Austria. The United Arab Emirates and its OPEC partners agreed to slash output in January after five major independent producers pledged to make reciprocal cuts. Russia, the world's second-largest oil producer, was a reluctant participant in those cuts and continues to be a source of concern for OPEC. Russia's government and oil companies have refused to commit themselves to reductions beyond April 1. Iraq is a focus of U.S.-led efforts to fight terrorism, and the country has seen its shipments suffer from a pricing dispute with the United Nations, which oversees Baghdad's crude sales. Speculation that an invasion aimed at toppling Iraqi President Saddam Hussein might disrupt Iraqi exports has created a "war premium" that has helped push up prices. Gignoux of Salomon Smith Barney said he didn't expect the recent rise in prices to persist. "At the end of the day, you can't have a war premium if you don't have a war," he said. If the United States goes to war with Iraq, Leo Drollas of the Center for Global Energy Studies said other OPEC members might, for political reasons, refuse to make up for lost Iraqi crude exports. "We could get price spikes this summer," he said. "Not a pleasant scenario."

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