OPEC cuts official oil output by 4 percent

<br>VIENNA, Austria (AP) _ OPEC members agreed Saturday to cut 4 percent from their targeted oil output, or 1 million barrels a day, in the hope of shoring up crude prices at a time of weakening demand.

Saturday, March 17th 2001, 12:00 am

By: News On 6

VIENNA, Austria (AP) _ OPEC members agreed Saturday to cut 4 percent from their targeted oil output, or 1 million barrels a day, in the hope of shoring up crude prices at a time of weakening demand.

The cut, which was at the upper end of most analysts' expectations, is aimed at keeping prices from falling further in the face of a seasonal dip in purchases and an overall decline in global economic growth. It will take effect April 1, the Organization of Petroleum Exporting Countries said.

The cartel's members pump almost 40 percent of the world's oil, and their decision will affect retail prices for gasoline and other refined products in importing countries such as the United States. One analyst predicted gasoline prices could rise sharply, but others said the impact would be less dramatic.

OPEC announced its decision after two days of talks in the Austrian capital.

``The present weaker world economy and the traditional sharp downturn in demand associated with the second quarter both clearly point to the need for a correction in oil supply, and the conference has taken the decision to stabilize the oil market,'' OPEC announced.

Unlike previous OPEC meetings in recent years, this one unfolded against a backdrop of economic fragility, with stock markets from New York to Tokyo registering steep losses in share values. Consumer confidence has suffered, and fears of a recession are growing.

These economic conditions complicated OPEC's efforts to arrive at a suitable cut in production, oil ministers said.

``We have to follow continuously this situation,'' OPEC secretary general Ali Rodriguez told a news conference after the meeting. ``The slowdown in the economy was entirely present in our analysis.''

The unusually long time it took OPEC to reach a decision attests to the difficulty delegates faced in working out the specifics.

OPEC will trim its output quota to 24.2 million barrels a day from its current level of 25.2 million barrels. Energy analysts had generally forecast a decrease of at least 500,000 barrels a day.

Markets were closed Saturday, but they had surged higher, then retreated Friday on the likelihood of a cut. Contracts of light, sweet crude for April delivery closed at $26.74 a barrel, up 19 cents, on the New York Mercantile Exchange.

May contracts of North Sea Brent crude ended 4 cents higher at $25.05 on the International Petroleum Exchange in London.

``I think a million barrels a day is already more or less factored into the market,'' said Mehdi Varzi, a senior oil analyst at the investment bank Dresdner Kleinwort Wasserstein in London.

``There may be a short-term rebound in prices,'' Varzi said, but he predicted that crude prices would decline over the next year or two.

Bill Edwards, an energy consultant based in Houston, expressed greater concern about the impact of the cut.

``I think OPEC will be surprised at how steeply the price rises,'' he said. Edwards predicted that crude prices could increase by as much as $6 a barrel and gasoline prices by as much as 30 cents a gallon.

But others analysts said markets would react with much less alarm to OPEC's decision.

``There may be a slight rise on Monday, but I don't think it will be huge,'' said Lawrence Eagles, head of commodity research at London brokerage GNI Ltd.

``On a retail level, (gasoline) prices will probably firm up a little bit, but they're not going to spike as they did last year,'' he said by phone from his home in Northern Ireland.

OPEC president Khelil said the group made its decision with the interests of consuming countries in mind.

``Just as you are concerned about consumers, we are concerned about consumers,'' he told reporters.

However, Khelil noted that high prices for gasoline in Europe are due primarily to fuel taxes, and he called on governments to lower them. Popular resentment at gasoline prices sparked protests last year in Britain, Spain and other European countries.

The production cut will be OPEC's second of the year so far. OPEC members agreed in January to lop 1.5 million barrels off their previous quota, a decrease that took effect Feb. 1. The current global economic weakness appears to have reinforced the case within OPEC for deeper cuts.

The organization also was anticipating a slowdown this spring in seasonal demand for heating oil and gasoline as the weather starts to warm in many importing nations.

Saudi Arabia's oil minister Ali Naimi said OPEC expects non-OPEC producers such as Russia, Mexico and Angola to cooperate by holding back some of their own oil from the market.

Iran's oil minister Bijan Namdar Zangeneh said non-OPEC countries will probably trim their supply by 200,000 barrels a day, but he gave no further details.

Analysts noted that last month OPEC members produced some 500,000 barrels a day above the target they agreed to in January. This amount of overproduction means that even if cartel members were to reduce their official output by 1 million barrels a day, the actual decrease might equal only half that amount.

OPEC is trying to stabilize prices at around $25 a barrel for an average of seven benchmark crudes. The OPEC average price has slid in recent months from more than $30 a barrel.

``I think they've done the best they can,'' Eagles said, calling the challenge of stabilizing prices ``an impossible task'' for OPEC to achieve on its own.

The cut will apply to all of OPEC's 11 members except for Iraq, which does not participate in the group's production agreements because its oil exports are regulated by the United Nations.

OPEC said it will meet again in June to assess market conditions at that time.