Oil cutback still in works, Saudis signal

OPEC is expected to discuss today what it will do

March 31, 2004|By NEW YORK TIMES NEWS SERVICE

VIENNA, Austria - Saudi Arabia signaled yesterday that it was proceeding with its plans to cut oil production, prompting a gathering of OPEC officials here to voice support for higher crude oil prices, which have become a sensitive political issue in the United States.

"Throwing more oil on the market would be destructive for everybody," said Ali Naimi, the oil minister for Saudi Arabia, the most influential member of the Organization of the Petroleum Exporting Countries. Naimi sought to brush aside criticism that his nation was seeking higher returns from oil exports, claiming that a flurry of speculative activity in commodity markets was behind the recent increase in oil prices.

Still, as if on cue from Naimi's statements, prices for light crude for May delivery climbed 80 cents to $36.25 a barrel on the New York Mercantile Exchange yesterday. OPEC is expected to discuss today whether it will adhere to a cut of 1 million barrels announced at a meeting last month in Algiers.

OPEC, which produces roughly one-third of the world's oil, is believed to be pumping about 26 million barrels a day, well above its official target of 24.5 million barrels. Supported by strong demand in China and the United States, the price for West Texas crude oil averaged $35.25 a barrel in the first quarter, the highest in 20 years, according to Cambridge Energy Research Associates.

There appears to be strong sentiment within OPEC to keep prices high, with several delegates speaking in support of Saudi Arabia yesterday, including representatives from Algeria, Libya and Venezuela. "I feel we should go with the cut," Fathi bin Shatwan, Libya's oil minister, told reporters. "Maybe there's a bit of oversupply, even."

Despite signs that some producers in the Persian Gulf might be hesitant to pursue an output cut, including the United Arab Emirates and Kuwait, OPEC is expected to follow in the direction of Saudi Arabia, which alone has the swing capacity to rapidly increase or decrease production. The Saudi economy is growing at its fastest pace since the early 1980s, helped by robust oil sales.

Growing concern in Washington over rising oil and gasoline prices seems to be having little effect on OPEC's decisions.

"People in power know that crude supplies have nothing to do with the current gasoline prices in the U.S.," Naimi, the Saudi oil minister, told reporters during a brisk walk through the streets of Vienna yesterday. "A lot of things will be said in an election year."

There is little doubt that gasoline prices in the United States, which are expected to reach a record this spring, are bringing renewed attention to OPEC's 11 members. At the Senate Armed Services Committee hearing on March 23, which was mostly about nuclear weapons, Edward M. Kennedy, a Massachusetts Democrat, questioned Spencer Abraham, the Energy secretary, about energy prices.

"No one in that state can understand why the president of the United States isn't jawboning OPEC to increase production to make a difference at the very time that we're losing men and women over there in Iraq," Kennedy said. "Maybe there's a rationale for that, but it's an intolerable position."

"We also are concerned about prices," Abraham replied. "I have expressed this on a number of occasions recently. We've also made it clear that we're not going to beg for oil."

But Andrew Card, the president's chief of staff, appearing on MSNBC two days later, said the United States was consulting with its "allies" in OPEC and asking for more production.

However, few analysts believe that OPEC will actually implement production cuts even if it announces such measures. For instance, it would be almost impossible for OPEC to immediately implement any cuts in April, since its members have already committed to shipping oil to customers around the world next month.

Data collected by analysts that track tanker movement also suggest OPEC shows few signs of letting up on shipments. Vela, the tanker arm of Saudi Arabia's national oil company, is thought to be sending more shipments to American ports in the Gulf of Mexico in April than in any month since October, said Katherine Spector, an energy strategist at Deutsche Bank.

"We might get cuts from a smaller OPEC member like the UAE, but more for reasons of maintenance than anything else," said Spector.

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