Opec braces for slump in energy demand

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Opec braces for slump in energy demand

By Andres Canizalez

CARACAS - The decline in demand for petroleum in this year's second quarter, calculated at 2 million barrels of crude daily, could force the Organization of Petroleum Exporting Countries (Opec) to implement further cuts in output in order to prop up prices, said the cartel's secretary-general Ali Rodriguez on Wednesday.

The energy ministers of Opec member countries are to meet March 17 in Vienna to assess the effects on world markets of a 1.5 million barrel-per-day cut in output that took effect on February 1.

Rodriguez, a Venezuelan, said that within the cartel exists the "conviction that it will be necessary to cut production, given that, generally, in the second quarter of the year there is a notable drop in demand and, of course, a decline in prices".

Venezuela's President Hugo Chavez, meanwhile, stated in Qatar that Opec seeks a "fair price" for petroleum in the international markets. Chavez concluded an official four-day tour on Wednesday of Saudi Arabia and Qatar, which are Opec members alongside Algeria, Indonesia, Iraq, Iran, Kuwait, Libya, Nigeria, United Arab Emirates and Venezuela. "Though one does not live on petroleum alone, we will use our unity to defend a fair price, because it is vital for allowing the governments of Opec countries to meet the needs of our people," Chavez stated on Tuesday in Doha, capital of Qatar.

"Demand could fall by 2 million barrels a day," according to Rodriguez, who nevertheless ruled out the possibility that the new cuts in output would reach that level, given the 1.5 million barrel reduction implemented earlier this month.

Benchmark crude prices suffered a fall during the week ending February 16. The Opec basket of seven crudes declined US$1.04 to close at $25.95 a barrel. The organization is staking its bets on a price band of $22 to $28 dollars a barrel to create a stable and predictable market that "benefits consumers and producers alike". The petroleum producing nations consider this price range to be appropriate and fair.

For its part, North Sea Brent hit a decline February 12 to 16, falling $1.78 dollars to $27.83 dollars a barrel, while US-produced crude registered $29.95 dollars, a 98 US cents decrease in the price of the 159-liter barrel.

International oil prices saw a difficult month last December when they shrank by some 25 percent. The decline came at a time when prices traditionally rise due to the arrival of winter in the industrialized countries of the Northern Hemisphere, which are the world's leading energy consumers.

Adding to the complexities of the oil price situation is the fact that analysts hold conflicting opinions on the market effects of the US and British bombings of Iraq. In the opinion of the Opec secretary-general, "speculative movement" could occur, potentially triggering a price hike. But Rodriguez emphasized that the market has already absorbed the impact of the Iraqi conflict, due to the fact that it has been ongoing.

With the cut in oil output in effect since February 1, Opec places 25.2 million barrels on the world market daily - 35 percent of the total crude traded. The volume excludes Iraq's output because that country has been subject to a UN-imposed embargo since the 1990 invasion of Kuwait and the 1991 Gulf War.


-- Martin Thompson (mthom1927@aol.com), February 22, 2001

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