OPEC to slash production by 4 percent

Oil held steady yesterday, digesting OPEC's decision to reduce output by 4 percent from April while moving immediately to plug leakage by members busting production limits.

US light crude, which surged more than US$1 a barrel after OPEC's announcement on Tuesday, was down just US$0.02 at US$33.85 a barrel.

OPEC's decision caught oil traders off guard as the market had widely expected the cartel to defer any change in official production limits of 24.5 million barrels a day (bpd) until its next scheduled meeting on March 31.

But the agreed cut of 1 million bpd reflected its determination not to risk a collapse in prices when demand tails off in the second quarter at the end of the northern hemisphere winter.

OPEC is haunted by the memory of the 1998 to 1999 price crash that saw crude slump to single digits.

"The price now is high, but do you know what the price will be in April, May or June? Should we wait until we have a crash? Should we wait until we have a crash and then work like we did last time? In 1998 it took us almost two years to get things back to normal," Saudi Arabian Oil Minister Ali al-Naimi said after OPEC's meeting in Algiers.

The group said it would immediately eliminate supply of 1.5 million bpd that is pumped above existing quotas.

"It looks like oil will stay high for the rest of 2004. It will be around US$30," said Jim Burkhard, director of global oil markets for Cambridge Energy Research Associates.

David Thurtell, commodities strategist at Commonwealth Bank of Australia in Sydney, said the fall in the value of the US dollar, the currency of oil trade, may have affected OPEC policy.

He said the output curbs showed the group was targeting the upper limit of US$28 a barrel for its reference basket of seven crude grades, rather than the lower end of the range at US$22.

The OPEC basket price stood at US$28.09 a barrel on Monday.