OPEC expected to boost production

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By BRUCE STANLEY, Associated Press

LONDON (March 23, 2000 4:04 p.m. EST http://www.nandotimes.com) - OPEC oil ministers are widely expected to reach an agreement next week that would boost worldwide petroleum supplies. But questions remain on whether the increase would be large enough to ease oil prices down from the highest levels since the 1991 Persian Gulf War.

The Organization of the Petroleum Exporting Countries has been under intense pressure from the United States to relax year-old production quotas that have caused prices for crude and refined products such as gasoline to skyrocket.

American motorists now pay an average of $1.54 per gallon for unleaded gasoline, an increase of 57.3 cents in the past 12 months, according to a recent survey conducted for the AAA auto club.

Industry analysts are warning of possible shortages and $2-a-gallon gas during the peak driving season this summer.

Oil ministers for the 11 OPEC countries are to meet Monday in Vienna, Austria, for their semiannual review of global oil markets. Saudi Arabia, OPEC's No. 1 exporter, has expressed interest in stabilizing prices at a level that won't cause extreme economic pain for the countries that buy its oil.

If high oil prices start bringing down economies, producers fear, demand for oil will plunge, and OPEC revenue from crude oil sales could quickly shrink.

Other members of the cartel have echoed the call for price stability. Even Iran, long a hawkish supporter of high prices, now appears to back some form of a production increase.

But OPEC has not shown willingness to boost production by the 2-to-2 1/2 million barrels per day that the United States and other industrial powers are advocating. Instead, analysts predict that OPEC will raise its daily output by little more than 1 million barrels. Many say this won't be enough to simultaneously replenish depleted oil inventories, meet seasonal needs for gasoline and push down prices.

"I think it's unlikely that OPEC will simply agree to what the West is asking for," warns Charlie Sharp of the London brokerage T. Hoare Canaccord.

OPEC produces more than 26 million barrels of crude each day, or about 35 percent of the world's supply.

Non-OPEC producers that have cut output in tandem with the cartel, including Mexico and Norway, favor an increase in production but are waiting to see what OPEC does.

To some extent, OPEC is a victim of it own success in reviving prices from the doldrums of late 1998, when crude sagged to less than $11 per barrel. After prices failed to respond to two rounds of production cuts earlier that year, OPEC finally got results in March 1999 when it trimmed output by an additional 2.1 million barrels per day, reducing the global supply by 2.6 percent.

Crude prices more than tripled as a result, peaking in the United States on March 8 at $34.37 per barrel.

Prices for home heating oil and gasoline have soared, creating what Peter Gignoux, head of the petroleum desk for Salomon Smith Barney, calls "an oil-shock quarter" for the first three months of the year.

U.S. Energy Secretary Bill Richardson has been meeting with officials of oil-producing nations to stress America's displeasure with costlier crude. Richardson said Wednesday that if OPEC doesn't act to bring down prices, the United States would reserve the option of dipping into its own strategic petroleum stockpile.

OPEC Secretary-General Rilwanu Lukman said Wednesday that it is unfair to assume that the Vienna meeting will result in increased output.

However, other OPEC sources and industry analysts believe that a decision to boost production is likely.

"I think there is a consensus over major issues," says Raad Alkadiri of the Petroleum Finance Co., a consulting firm based in Washington.

One complication is that OPEC members already are cheating on their own quotas, overproducing by at least 1 million barrels per day. OPEC's compliance rate with its cuts of last March has slipped from a high of 91 percent in July to 74 percent in February, according to the Paris-based International Energy Agency.

Any increase in production must somehow account for these "unofficial" barrels, which have benefitted consumers by helping to moderate the spike in prices.

Sharp of T. Hoare Canaccord suggests that OPEC might decide to let its compliance rate slip to perhaps 60 percent, in addition to increasing its official production.

"That effectively would create a softish landing in the oil price," he says.

Anticipation that OPEC will open its taps further has caused prices to slip over the past several days.

West Texas Intermediate crude, the benchmark U.S. oil, has tumbled 20 percent since peaking two weeks ago. It was down 6 cents at $27.40 a barrel Thursday afternoon on the New York Mercantile Exchange.

Copyright ) 2000 Nando Media Copyright ) 2000 Associated Press

http://www.nandotimes.com/noframes/story/0,2107,500184234-500244929-501227815-0,00.html



-- Martin Thompson (mthom1927@aol.com), March 23, 2000


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