Oil prices slip despite Saudi promise of OPEC output cut
Oil prices trickled lower on Tuesday despite a pledge from OPEC kingpin Saudi Arabia that the group would cut output when it meets on Friday.
A barrel of Brent North Sea crude for April delivery was selling for $25.71, against $25.88 at the previous close. New York April futures shed 18 cents to $27.82 a barrel.
Saudi Arabia announced on Monday that the Organisation of Petroleum Exporting Countries (OPEC) would decide to squeeze output when it meets in Vienna on Friday.
"OPEC will decide on a reduction in its production in a way that will keep the price of crude at its targeted level of $25 a barrel and guarantee a balance between supply and demand," Saudi Oil Minister Ali al-Nuaimi said in Riyadh after talks with Mexico and Venezuela. Mexico is not an OPEC member.
OPEC's benchmark price of seven crudes worldwide that it uses to help set output quotas stood at $24.38 a barrel on Monday, down from $24.59 on Friday, the OPECNA agency reported.
"If the price falls too much further then we may see larger-than-expected OPEC production cuts," said Christopher Bellew, a trader with the Prudential Bache brokerage.
Al-Nuaimi said that the next OPEC cut would "take into account current stock levels and those expected over the coming months." Oil experts are predicting a reduction of between 500,000 and one million barrels per day as the most likely outcome.
Lawrence Eagles at the GNI brokerage said: "There is a 0.5-million barrels-per-day spread between the high and low estimates for a cut, but we do not believe that the market will have a wild swing if the output cut is at the higher or lower end of expectations."
OPEC is concerned that the global slowdown will gnaw at demand for crude, which traditionally wanes in any case as winter thaws in the northern hemisphere. But the prospects for demand for crude remain to a large extent a mystery.
"The lack of reaction (in prices) would also be because traders do not really have a firm idea of where demand will be later this year," Eagles said in a research note. Whether Mexico would join production the cut-back also remained unclear, he said.
"Naimi also said that the meeting underscored the importance of an output cut by 'oil exporting countries'. However, while this would seem to suggest cooperation by Mexico, we would wait until there is official confirmation of such a move," he concluded.—AFP.
©--Agence France Presse 2001.
© 2001 Mena Report (www.menareport.com)