OPEC to announce output cut while markets closed

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Saturday, March 17 9:22 AM SGT

OPEC to announce output cut while markets closed

VIENNA, March 17 (AFP) -

The OPEC oil-producing cartel is to announce a larger-than-expected production cut Saturday, having apparently mostly ignored concerns about a global economic slowdown.

The cut, the second this year, is expected to be around 1 million barrels per day (bpd), at the top of the range forecast by analysts before the Organization of Petroleum Exporting Countries (OPEC) meeting.

OPEC Secretary General Ali Rodriguez confirmed that the 11-member grouping would meet again at 8:00 am (0700GMT), after two meetings Friday failed to pin down the final size of the cut.

"We will reach an agreement tomorrow morning," he told reporters after a three-hour formal session of the grouping Friday evening. "We need to finalize some details," he explained.

Before the OPEC meeting analysts had forecast a cut of between 500,000 and 1 million bpd.

Analysts said the cut, announced while world markets are closed over the weekend, is a risky move as OPEC attempts to shore up prices which have threatened to slump in recent months.

"A 1 million cut is quite a risky decision because it will be keeping prices at the top end of the range," said Mehdi Varzi of Dresdner Kleinwort Benson.

OPEC, which has seen prices fluctuate wildly over the last two years, from 10 dollars to over 35 dollars last year, is nervous about a new price slump as demand eases going into summer in the northern hemisphere.

The cartel already cut production by 1.5 million bpd in January to shore up slumping prices, but concerns that prices could weaken further have led to calls for another steep cut.

The fact that Friday's meeting was dragging on into Saturday was seen by some analysts as avoiding upsetting markets by announcing the cut while markets were open.

But others said it simply highlighted differences within OPEC.

OPEC kingpin Saudi Arabia was apparently holding out against price hawks who want a bigger production cut to boost prices, said Leo Drollas of the London-based Centre for Global Energy Studies.

"The Saudis have been dragged up. They are saying 'let's worry about the world economy, let's worry about the US economy.' The others are saying 'well why worry about that, this is where our oil demand is.'"

The US slowdown and its impact on other industrial economies are clouding deliberations among the oil ministers.

Even as the OPEC meeting started, the European Commission expressed "concern" at the possible impact. "It is not the right time to do it," said a commission spokesman referring to a cut of up to 1.5 million bpd.

Rodriguez downplayed the significance of divergences within OPEC over the size of the cut, which will represent about 4 percent of OPEC's 25.2 million bpd output.

"Normally before the meetings the ministers have different positions. It is normal," he said, adding that "We need to finalize some details" before the cut is formally announced.

Markets are not expected to react too sharply to the cut.

"In practical terms it's already been discounted. The market is factoring it in already," said Varzi. "It's compliance that matters," he said, noting that OPEC member states were known to have exceeded their quotas agreed under the January production cut.

"In February compliance was not very good. We have to see if it's going to be more or less efficient this time," he added.

-- Swissrose (cellier3@mindspring.com), March 16, 2001

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