OPEC comments nudge oil prices lower in N.Y.

Reluctance to reduce crude output is signaled

March 23, 2004|By NEW YORK TIMES NEWS SERVICE

HOUSTON - Some OPEC members are signaling their reluctance to proceed with announced cuts in petroleum production after crude oil prices climbed in the past week to their highest level since the Persian Gulf war.

Oil prices eased yesterday after the statements, falling 57 cents, or more than 1.5 percent, in New York, to $37.05 a barrel.

The Organization of the Petroleum Exporting Countries is scheduled to discuss production quotas at a meeting March 31 in Vienna, Austria, but several representatives from member nations, including officials from Qatar and Venezuela, said they were hesitant to significantly cut production.

The statements illustrate a widening gap between the group's announcements and its resistance to carrying out those policies - particularly one to cut production when elevated oil prices are replenishing the finances of its 11 members. Oil prices have climbed more than 15 percent since January, driving gasoline prices in the United States to record levels while producing budget surpluses in nations such as Saudi Arabia, OPEC's most pivotal member.

OPEC had said last month at a meeting in Algiers that it was planning to reduce production by 1 million barrels of crude oil a day, a move that would lower the group's output to 23.5 million barrels a day. OPEC, which accounts for more than one-third of global oil production, also called on members to adhere more strictly to previously established quotas.

Neither policy appears to have been adopted by all 11 OPEC members as robust demand for oil continues in Asia, particularly China and India. OPEC cut production by just 150,000 barrels a day in March, according to data collected by Petrologistics, a company based in Geneva that tracks tanker activity around the world.

"There's very little incentive to lower production when prices are at this level," said Julian Lee, senior energy analyst with the Center for Global Energy Studies in London. "The market is simply tighter than OPEC and others had realized."

Strong demand for oil in Asia is one reason for higher crude prices in recent months, though analysts also said that aggressive bets by large commodity speculators have also contributed to the recent run-up in oil markets. Much of the attention on Asian oil supplies is related to the fast-growing economies of China and India.

Sales of diesel fuel in India, which account for about 40 percent of the oil sold in that country, soared 10 percent in February from the same month a year earlier; automobile sales in India increased 31 percent in the last year. India's oil imports are forecast to continue to climb as its economy grows 8 percent this year.

Long-term forecasts also see burgeoning demand for oil in the region. Oil demand in all of Asia is expected to rise to 38 million barrels a day by 2025 from 21 million barrels a day, with more than half of the new import demands coming from China and India, said Joseph Ferguson, director of Northeast Studies at the National Bureau of Asian Research in Seattle.

"Much of the growth in China and India is taking place in urban areas where the need for transportation fuels is greater," Ferguson said. "It's hard to see a scenario where oil prices go back down to the low levels of the mid-1990s."

Faced with growing concern over the recent increase in crude prices, Saudi Arabia, OPEC's largest and most influential producer, has been circumspect about its plans for next week's meeting. The Saudi oil minister, Ali al-Naimi, said in an interview over the weekend with the Italian newspaper Il Sole 24 Ore that he was not prepared to elaborate on whether OPEC would delay production cuts.

"I don't know," Naimi said. "At the moment, no one is in a position to say."

Some OPEC members are believed to be fretting about a repeat of 1997 and 1998, when oil fell to $10 a barrel after OPEC misread Asian demand for oil. Abdullah bin Hamad al-Attiyah, Qatar's oil minister, told reporters yesterday at a meeting in Doha, Qatar, that OPEC needed to "stabilize" prices to prevent a collapse.

There are signs that some investors are already preparing for prices to decline, if not by much. Commodity speculators with so-called net long positions, or bets that prices will climb, trimmed those wagers for the second week in a row, the Commodity Futures Trading Commission said in a report released Friday.

"The market has taken OPEC's statements at face value regardless of the facts," said Kyle Cooper, an energy futures analyst with Citigroup in Houston. "It's about time to have a rigid reinterpretation of what OPEC says and what it does."

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