OPEC to keep output low as rivals boost production

Crude oil prices rise in London, New York

June 25, 2002|By BLOOMBERG NEWS

VIENNA - OPEC, seeking to keep oil at $25 a barrel, plans to maintain output quotas at the lowest level in a decade even if it means losing customers to rival producers.

Ministers from the group will meet this week to establish new targets because the agreement that drove prices up 27 percent by lowering output 1.5 million barrels a day expires this month. Officials from Saudi Arabia and other members, which pump one-third of the world's oil, have said they will extend this year's cuts.

To prevent losing market share, the Organization of the Petroleum Exporting Countries may have to step up cheating on its quotas. Oil demand is rising at half the rate of the 1990s, and Norway and Russia are boosting output, raising expectations that prices may fall.

"It's a dilemma for OPEC," said Steve Thornber, who manages 450 million pounds ($675 million) at Threadneedle Investments in London. "They must believe that they get better value for oil in the short term by restricting supply. Perhaps at some point they may feel they don't want to do it any more, but not for the moment."

Oil prices rose as much as 57 cents, or 2.3 percent, to $25.32 a barrel for Brent in London yesterday as tension increased in the Middle East. Israeli tanks surrounded the compound of Palestinian leader Yasser Arafat in Ramallah.

Prices rebounded from a two-year low in November after OPEC demanded that Russia and Norway reduce output or face a flood of oil. After an initial reluctance, those nations and Mexico, Oman and Angola agreed to trim supplies by 462,500 barrels a day. Russia and Norway are to end their restrictions this month.

So far this year, Brent has averaged $23.34 a barrel, buoyed by OPEC restraint and political tensions in the Middle East that raised traders' concern of supply disruptions from the region. During the 1990s, the price averaged around $18.50.

"There is still this political equation which is sustaining things, which makes me a little bit nervous" about where prices are headed, said Roger Richards, an analyst at Prudential Bache Ltd. "I don't think there's any reason to be loosening the tap."

Oil prices around today's level risk undermining growth in demand, analysts said. Global oil use last year fell for the first time since 1993 because of an economic slowdown and high prices, BP PLC said in its latest energy review.

On the New York Mercantile Exchange yesterday, crude oil for August delivery rose 65 cents to $26.47 a barrel, the highest closing price there since May 21.

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