OPEC oil producers announced Wednesday they would slash output by 1.5 million barrels per day (bpd) from February to underpin prices, much to the dismay of oil importers in Asia, Europe and the United States.
In their first output cut for almost two years, oil chiefs from the 11-nation Organisation of Petroleum Exporting Countries (OPEC) agreed the five-percent output squeeze -- and said further reductions could be in the pipeline to boost flagging crude prices.
Oil-consuming nations frowned at the move. The European Commission called it "premature" and said it could have "negative effects" on the world economy.
But the production crunch had been widely touted, and crude prices weakened soon after the decision. In London, Brent futures softened to $24.95 a barrel, from $25.41 earlier in the afternoon.
"I believe the price of crude will remain within the OPEC price band," said OPEC Secretary General Ali Rodriguez, referring to the cartel's target price range of $22-28 a barrel.
Asked whether OPEC could tighten the taps further at its next meeting pencilled in for mid-March, Rodriguez said: "Maybe".
OPEC was determined to lower output, despite protestations from the United States and Europe, to avoid a repeat scenario of the 1998-99 oil market crash, when producer nations were crippled by 10-dollar per barrel oil.
Prices have fallen sharply in recent weeks after soaring to 10-year highs above $35 a barrel, because of predictions that supply will outstrip demand this year. It is this situation that OPEC hopes to reverse.
"I am very happy and I think the consuming countries will be very happy too," added OPEC's new president, Chakib Khelil of Algeria.
But oil-consuming countries had urged OPEC to show restraint, fearing that higher prices will filter through, stoking inflation, crimping corporate profits and tilting the world economy towards recession.
In Brussels, the European Commission said the cut was "premature" and "threatened to have negative effects, notably on the economies of consumer countries ... but also on other countries."Analysts also fear that the cut has come too soon.
"Consumer countries can't be happy with $25" a barrel, said Leo Drollas, an oil expert with the London-based Centre for Global Energy Studies.
"They are running into a near-recession in the United States and $25 is not good for them," he told AFP in Vienna. "The new (US) administration might do some lobbying to get this reversed but it won't have much effect because they (OPEC) want $25."
He predicted that the OPEC move would keep prices between $25 and $26 in the near term, before a slight dip in prices during the northern hemisphere summer when demand eases off. Prices would jag back up towards $28 in the last quarter however, he added.
Others were more pessimistic.
"This short-term, highly reactive management will result in even more volatility on the market and lead to prices above $30 a barrel in March or April when demand picks up again," said Roger Diwan, managing director of the Washington-based Petroleum Finance Company.
A primary fear, say market watchers, is that the OPEC cut will be compounded by fitful exports from Iraq, where production has been reined in sharply in recent weeks amid a row with the United Nations over the oil-for-food programme.
The OPEC cut is the first since March 1999, when the cartel acted to reverse the price slump that hammered all member state economies.
That squeeze ultimately had the desired effect, sending prices soaring above $30 a barrel, and generating multi-billion petrodollar windfalls for major oil exporters last year.
OPEC is hoping to preserve such gains, though publicly ministers insist they are merely acting to try to secure a fair, stable market price for producers and consumers. In order to do this, they have warned that they will adjust supply much more regularly than in the past.
"We are on the same ship. We have to work together to reach safety," said Qatari minister Abdullah al-Attiyah. "Low prices make consumers very happy, higher prices make producers happy. But we should both sides work together to make all of us happy."—AFP.
©--Agence France Presse 2001.
© 2001 Mena Report (www.menareport.com)
