OPEC Agrees To Cut Crude Output

Tuesday, January 16th 2001, 12:00 am

By: News On 6

VIENNA, Austria (AP) â€” OPEC members have agreed informally to cut their output of crude by 5 percent, the Saudi Arabia oil minister said Tuesday, in a widely anticipated move aimed at keeping prices firm ahead of slower seasonal demand for refined products.

Saudi oil minister Ali Naimi told reporters that members of the Organization of the Petroleum Exporting Countries have reached a consensus to cut production by 1.5 million barrels a day, effective Feb. 1. He refused to elaborate.

Saudi Arabia is OPEC's largest producer and plays a leading role in formulating the cartel's production policy. OPEC delegates were to announce details of the decrease in production Wednesday, when they planned to meet formally to reassess their current output quotas.

``The cut is not going to have a negative impact on consumers,'' predicted Leo Drollas, chief economist of the London-based Center for Global Energy Studies.

``It's not too bad. It could have been worse,'' he said.

Perhaps the biggest wildcard for consumers and OPEC alike is Iraq, an important cartel member, which 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.

Iraq has not participated in the cartel's production agreements since the Persian Gulf War, and OPEC members said they aimed to trim output regardless of what Iraq does.

However, Saudi Arabia and Qatar suggested that OPEC members would make up for any shortfall created by an Iraqi withdrawal from the market, thereby helping to contain any surge in prices.

Iraq has slashed its crude exports by approximately 1.7 million barrels a day, shipping just 600,000 barrels a day in December. The interruptions have continued this month.

``We will interfere when we see the market is facing some difficulties. We will not let a shock happen for consumers or producers. We will be there at the right moment,'' said Qatari Oil Minister Abdullah bin Hamad Al Attiyah.

Oil prices have been surging in recent weeks, jumping above $30 a barrel last week and reaching a four-week high.

Drollas predicted that U.S. benchmark light, sweet crude would stay around $28 a barrel in the first quarter as a result of OPEC's planned production cut. North Sea Brent would stabilize at around $25.50 a barrel, he said.

On Tuesday, February contracts of light, sweet crude settled at $30.29, up 24 cents a barrel on the New York Mercantile Exchange. Brent, the European benchmark crude, was trading at $26.20, up 2 cents on the International Petroleum Exchange in London.

OPEC members fear that prices could collapse if they fail to act, as the once-torrid U.S. economy begins to cool and seasonal demand for heating oil begins to diminish in the second quarter of the year.

Energy analysts had said a decision to reduce output was a foregone conclusion of Wednesday's meeting.

In recent weeks, Saudi Arabian officials had publicly advocated cutting OPEC's current quota by 1.5 million barrels.

Asked if he expected a quick agreement on such a cutback, Kuwaiti Oil Minister Saud Nasser Al-Sabah told reporters earlier Tuesday: ``We have that already.''

The Saudis and their supporters apparently won over Iran and Qatar, which had called for bigger cuts in production.

Qatar had sought a cut of 2 million barrels a day, but it moderated its stance, with Al Attiyah saying he was ready to listen to other proposals from OPEC members.

An Iranian source, speaking earlier on condition of anonymity, suggested that Iran â€” OPEC's No. 2 producer â€” would ease its demand and support its fellow members in cutting back by 1.5 million barrels.

OPEC typically acts only with the unanimous agreement of all its 11 members.

The group 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.

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

OPEC members are decreasing their production in spite of 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 traveled to the Persian Gulf over the weekend to lobby OPEC members not to cut output. High oil prices have been blamed in part for the U.S. slowdown. Oil prices peaked at more than $35 last year, then drifted lower before rebounding this month together with other energy products.

Naimi suggested that a decrease of 1.5 million barrels a day would be enough to ensure that the average price of OPEC crude stays at around $25 a barrel.

``We want the market to be in a stable mode. Therefore we need to take a reduction,'' he said late Monday.