Print

Mail

wiki links

OPEC tightens oil supply

OPEC on Wednesday forged ahead with tighter oil supply curbs, deaf to consumer country complaints about crude prices near 13-year highs.

Delegates from the 11 members of the organization cited robust demand for crude oil and ample supply as the main reasons for their decision, which comes at a delicate time in energy markets. Pump prices for gasoline are setting record highs in the US, and crude oil is more expensive than it has been at nearly any time since the first war with Iraq in 1991.

Still, skepticism persists that OPEC's decision, ratifying a plan first announced last month in Algiers, would result in actual production cuts; the cartel has announced cuts at other recent meetings that have never been implemented.

The cartel agreed to turn down the taps despite calls from the US for cheaper fuel. The Bush administration, in an election year, had pressed OPEC to lift export restrictions to help control prices at the pump and prevent energy inflation slowing economic growth.

Delegates said cartel powerhouse Saudi Arabia led the push for implementing cuts of 1 million barrels a day or 4 percent from yesterday.

"The Saudis have gone from being a reliable OPEC price dove to OPEC's arch price hawk," said independent energy consultant Mehdi Varzi.

"That's because of the demands of the Saudi budget. They need higher and higher oil prices every year to meet current expenditure for a larger and larger population," he said.

The White House said President George W. Bush was "disappointed" in OPEC's decision.

"Producers should not take steps that harm American consumers and our economy," said a spokesman for the White House.

Oil prices eased after the deal. A big weekly build in US crude inventories led the slide but expectations among traders that OPEC will be slow to enforce lower quota limits also undermined prices.

Benchmark U.S. crude ended off US$0.49 at US$35.76 a barrel, down from a recent peak of over US$38 on the New York Mercantile Exchange.

OPEC blames speculative investment funds, now commanding record positions on energy contracts, for this year's oil price spike.

Gary Ross of leading US energy consultancy PIRA Energy said: "We estimate speculative funds have already invested US$15 billion in oil futures contracts in New York and London.

This decision is only going to encourage the speculators to stay long on oil markets."

Saudi Arabia's regional Gulf allies Kuwait and the United Arab Emirates (UAE) had recommended OPEC consider delaying tighter output restrictions to allow oil prices to cool.

The unusual division among OPEC's core Gulf members raised speculation that the US is now targeting Kuwait and the UAE, instead of Saudi, for diplomatic efforts aimed at getting lower prices.

Despite a ritual call from ministers for full adherence to quotas, the behind-the-scenes sop to Kuwait and the UAE appears to be a less than rigorous requirement to immediately meet new limits.

Delegates said that to cater to Kuwaiti and UAE concerns it was privately acknowledged by Saudi that actual supplies would not be cut much more in this month, unless oil prices fall.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah admitted that it would be next month before cartel compliance improved.

"This idea of a compromise to get the Kuwaitis on board, meaning not much of a cut will get implemented, is going to cap prices," said Nauman Barakat of brokers Refco in New York.

If OPEC production is actually reduced, most of the cuts will have to come at Saudi fields, analysts said. Saudi Arabia accounts for about one-third of OPEC's official production of 24.5 million barrels a day.

Analysts believe that most OPEC members are flaunting their official production targets, and that the group is actually producing closer to 26 million barrels a day.

Saudi and a few other OPEC countries have already ordered slightly lower April volumes, moving down towards the new combined limit of 23.5 million barrels daily.

But Reuters estimates from a survey of OPEC customers are that actual supplies are likely to drop by only about a third of the planned million barrel a day cut.
This story has been viewed 1898 times.