Where is all that oil we were going to take from Iraq?

[stormchazer]

OPEC to Cut Oil Output by 1 Million Barrels a Day

Tuesday, February 10, 2004



In a surprise move, OPEC agreed on Tuesday to immediately cut excess production of crude oil and lower output quotas by 1 million barrels a day effective April 1. The move sent crude prices higher and drew a warning from the United States about the risk of stunting world economic growth.

The deal slices four percent from production limits for the group that controls half the world's oil trade to 23.5 million barrels a day, effective April 1. The Organization of Petroleum Exporting Countries (search) also immediately eliminated 1.5 million barrels a day of leakage being pumped above existing supply quotas. It expects the combined cuts to curb its production by about 10 percent, or 2.5 million barrels a day.

OPEC members agreed to the two-stage output reduction in an attempt to keep oil prices stable when warmer weather is expected to erode demand in major importing countries.

"The inventory, where it is now, is fine, we don't want to see it building," said Saudi Oil Minister Ali al-Naimi. "We don't want to see a precipitous fall in prices."

Oil prices rose in New York and London on the news, but the brief buying spree lost momentum later.

London Brent futures (search) climbed 54 cents to $29.65 a barrel on the surprise cut, while U.S. light crude (search) gained 66 cents at $33.49 a barrel.

Dealers said the agreement would protect OPEC against a price slump but could undermine cartel credibility because of the ballooning gap between official quotas and actual output.

"It's a clever move by OPEC, giving the market some support before the second quarter," said Oystein Berentsen, head of crude trade at Norway's Statoil.

"But given the amount they are leaking people will want to see how much of the cut they implement. There's a question mark over their credibility."

And after an initial price leap, buying lost momentum after UAE Oil Minister Obaid bin Saif al-Nasseri said the cut could be reversed at the group's next meeting on March 31, if necessary.

"It a big call," said Kevin Norrish of Barclays Capital in London of the proposed one million bpd cut and 1.5 million bpd clamp down on leakage.

"After the market's initial knee-jerk reaction, it will be more skeptical, probably with good reason."

Prices are still near the top of their $6-a-barrel winter rally, fueled by tight supplies combined with cold weather in key heating energy consuming regions.

For consumer nations the pact looks like a threat to world economic recovery and a reminder that OPEC appears prepared to defend prices above its official $22-$28 target range.

"It is our hope that producers do not take actions that undermine the American economy ... and American consumers," said a spokesman for the White House.

The decision casts doubt on assurances from Riyadh that it wants no more than $25 a barrel for OPEC benchmark crude.

Saudi Arabia had appeared to soften its tone on oil price policy since OPEC last met. Naimi said at a December meeting that higher prices were justified by the impact of the weak dollar on producers' spending power.

Since then, and again in Algiers, he has made a point of re-emphasizing Riyadh's commitment to OPEC's central $25 target.

"Doing what they've done today clearly shows they want to support a $28 basket, rather than $25," said Nauman Barakat of brokers Refco in New York. "It's a big call," said Barclays Capital analyst Kevin Norrish. "Our own view is that OPEC does not need to cut by as much as it appears to be aiming at."

Naimi said cuts were justified by projections for a heavier-than-normal seasonal second quarter fall in demand

The International Energy Agency, adviser on energy to 26 industrialized nations, provided OPEC with plenty of ammunition for its decision.

The Paris-based IEA is forecasting demand will undercut world supply in the second quarter by as much as four million barrels a day, more than double the normal seasonal gap.

OPEC's urging its members to better comply with agreed quotas was expected, but its decision to make an additional cut in its formal output came as a surprise.

The group is still smarting after its 1997 decision to increase production just before an Asian financial crisis that sent oil prices plummeting to $10 a barrel. OPEC has tried recently to take pre-emptive steps to prevent another such price collapse. In September, it defied predictions of an unchanged production target by announcing a 900,000 barrel cut in its output ceiling.

OPEC has a long history of pumping oil in excess of its quotas, but Kuwait's Oil Minister Ahmad Fahad Al-Ahmad Al-Sabah said its members would be much more serious this time.

"All the signals and all the studies show that the second quarter will be a very bad quarter ... Everybody, for his benefit, has to be strict with these resolutions," the Kuwaiti minister said.

Reuters and the Associated Press contributed to this report.


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All market data delayed 20 minutes.

[janswizard]

I know this sounds like a stupid question but doesn't the United States have oil wells? Is there not enough oil for our own use or do we try to just keep what we have for reserves?

[rainstorm]

not near enough. and of course, the dems wont let us drill for anymore.

[stormchazer]

I know this sounds like a stupid question but doesn't the United States have oil wells? Is there not enough oil for our own use or do we try to just keep what we have for reserves?

It is not stupid. The US produces about 2% of its on oil. Thanks to the Enviromental Lobbys "the sky is falling" policy against domestic oil exploration, most of the reserves in Alaska, the Plains, the Gulf of Mexico and Florida are currently off limits. Think of that while you are standing at the pump.

[Lindaloo]

Yep looks like OPEC is sticking it to us AGAIN!!