OIL - Prices skid, but OPEC will cut production only if non-OPEC does also

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Oil prices skid as OPEC vows to cut oil output but only if non-OPEC producers do same

By Bruce Stanley, Associated Press, 11/15/2001 02:08

VIENNA, Austria (AP) In a desperate effort to stabilize plunging oil prices, OPEC has made a conditional promise to cut crude output that ranks as one of the cartel's weakest and most uncertain agreements in recent memory.

The Organization of Petroleum Exporting Countries agreed Wednesday to reduce its daily production target for oil by 1.5 million barrels, or 6 percent, but only if non-OPEC producers share the burden by making a deep cut of their own.

OPEC delegates are asking Norway, Mexico and other independent oil-producing countries to decrease their output by 500,000 barrels, for a combined cut of 2 million barrels a day. The cuts are to take effect Jan. 1.

However, industry analysts said major non-OPEC producers are reluctant to cooperate unless they first see OPEC members make a serious effort to keep from busting their own quotas. OPEC currently pumps at least 800,000 barrels above its daily target of 23.2 million barrels.

''In many ways, it's a game of chicken,'' said Yasser Elguindi of Medley Global Advisors, a New York consultancy.

Confronted with a sharp drop in global demand for crude, OPEC has cajoled, threatened and warned of a price war if producers outside the group refuse to close ranks with it.

OPEC members argue that they've already curtailed output by 3.5 million barrels a day this year without a meaningful contribution from other producers. They say they're tired of giving a free ride to non-OPEC producers, particularly as OPEC has lost market share as a result.

Lingering uncertainty from the terrorist attacks on the United States has exacerbated OPEC's problems, with prices tumbling by a third since Sept. 11 alone.

''The situation has deteriorated beyond the control of OPEC,'' Kuwaiti oil minister Adel al-Sabeeh said at OPEC's headquarters in Vienna.

Al-Sabeeh stressed that OPEC would not trim production on its own. ''Without a substantial contribution from non-OPEC (countries), OPEC cannot maintain the prices,'' he said.

The group had pledges of non-OPEC cuts totaling about 175,000 barrels a day, said Libyan Oil Minister Abdulhafid Mahmoud Zlitni. Russia, the world's third-largest oil producer, has offered to make a token cut of 30,000 barrels a day. Ministers refused to name the other countries that have committed to cut output. Later Wednesday, Mexico said it will cut oil exports up to 100,000 barrels per day.

OPEC officials tried to put a brave face on their agreement.

''We'll have a cut of 2 million (barrels) on the 1st of January, I don't have any doubt,'' said OPEC president Chakib Khelil, who expressed hope that the cuts might even be achievable before the end of the year.

OPEC secretary-general Ali Rodriguez struck a conciliatory note. ''We are not putting pressure on others. We are calling for contributions,'' he told a news conference.

But Rodriguez, pressed by reporters to say what OPEC would do if nonmembers failed to cut 500,000 barrels a day, replied: ''We'll cross the river if we arrive at the river.''

Oil markets responded to OPEC's uncertain message with a huge sell-off. December contracts for North Sea Brent crude plunged $2.06 Wednesday to close at $18.75 a barrel in trading on the International Petroleum Exchange in London.

Light, sweet crude for December delivery dropped $1.93 to close at $19.74 on the New York Mercantile Exchange.

OPEC delegates continued to talk of targeting the price for the cartel's benchmark blend of seven crudes within a range of $22-28 per barrel. However, OPEC's benchmark price was $19.23 a barrel on Tuesday, the most recent day for which the data was compiled, and analysts saw little hope of an immediate rebound.

Leo Drollas, chief economist at the Center for Global Energy Studies in London, forecast that OPEC's benchmark price for crude would fall to $18.10 during the first quarter of next year even with cuts of 2 million barrels a day.

''It's a very difficult situation to save, short term,'' he said. ''But they have to cut in order to get prices away from disaster levels for them.''

Others said it was already too late.

''They had their chance a couple of months ago. If they had cut then by a couple of million barrels a day, they could have saved the price,'' said Bill Edwards, an independent consultant based in Houston.

Edwards warned that prices could skid to around $8 a barrel by next November.

Prices got a modest but much-needed boost from an unexpected quarter on Tuesday, when President Bush ordered the U.S. government to put more oil into America's emergency stockpile currently 544 million barrels and for the first time fill the reserve to full capacity of 700 million barrels.

-- Anonymous, November 15, 2001


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