OPEC ministers agree to cut output by 1.5 million barrels

5.6% reduction expected to maintain high prices

January 17, 2001|By BLOOMBERG NEWS

VIENNA, Austria - Members of the Organization of the Petroleum Exporting Countries have agreed to cut production targets by 1.5 million barrels a day when they meet today, Saudi Arabian Oil Minister Ali al-Naimi said yesterday.

"There is an agreement," al-Naimi, whose nation is the world's biggest oil producer, said after consulting with colleagues in Vienna before the meeting. A daily reduction of 1.5 million barrels would be 5.6 percent of the combined quotas adopted by 10 OPEC members in November.

A cut by OPEC would be its first in two years and might keep energy prices high at a time when world economic growth is slowing. Prices for benchmark Brent crude oil rose for a sixth day, gaining 2 cents to $26.20 a barrel in London. That's $1.20 above OPEC's minimum target price.

Al-Naimi met yesterday with oil officials from OPEC members Kuwait, Nigeria and Qatar. He said he also conferred with OPEC Secretary-General Ali Rodriguez of Venezuela and the group's president, Algerian Oil Minister Chekib Khalil.

Al-Naimi earlier had dismissed suggestions that OPEC should accept lower prices to help the world economy recover, saying oil costs had a "negligible impact" on gross domestic production. U.S. Energy Secretary Bill Richardson warned yesterday that "steep" cuts in OPEC production might harm the world economy and urged the members to be cautious in their decision.

OPEC increased output four times last year, to a 21-year high, causing prices to fall by a fourth in December after reaching a 10-year high of $35.30 in October. Production quotas for 10 of the group's 11 members rose by about 3.7 million barrels a day during 2000 to 26.7 million barrels a day.

Production by OPEC member Iraq, which has been sporadic in recent weeks, is regulated by the United Nations under sanctions imposed after the 1990-1991 Persian Gulf war and is not covered by an OPEC quota.

"We have to assume Iraq is going to produce at full capacity," said Rilwanu Lukman, Nigeria's OPEC representative and former secretary-general.

"The big move after this meeting will be to see what Iraq does," said Keitaro Sugihara, an Abu Dhabi-based manager with Idemitsu Kosan Co., a Japanese oil-trading company that buys 270,000 barrels of Saudi and United Arab Emirates oil a day. "If Iraqi production recovers, prices will definitely fall. OPEC will probably need to cut again once Iraq comes back in order to maintain prices at the target level."

Saudi Arabia's al-Naimi reiterated yesterday OPEC's support for a target of $25 a barrel for the group's benchmark price. Yesterday, it stood at $24.62 a barrel.

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