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OPEC Cuts Output Again
VIENNA, March 17 (News Agencies) - The OPEC oil cartel on Saturday slashed output for the second time this year to head off a slump in crude prices, but denied the move could fuel a global slowdown and hurt consumers.
The Organization of Petroleum Exporting Countries (OPEC) agreed to cut production by one million barrels per day (bpd), or around four percent, from April 1st to shore up prices as demand wanes into the northern hemisphere summer.
But it brushed aside suggestions that the cut would push up costs in oil-importing countries and hinder growth in the stalling world economy.
A stable oil price within the cartel's target band of $22-$28 would benefit both producers and consumers, OPEC President Chakib Khelil told reporters.
An excess of oil could spark a "downward spiral and a collapse in prices, which would be detrimental to producing and consuming countries" and undermine investor confidence, he said.
But analysts warned that the move by OPEC, which produces 40% of the world's crude, could hinder recovery in the faltering global economy.
"It wasn't required. It will push prices higher than they should be," said Leo Drollas of the London-based Center for Global Energy Studies, warning that the risks for consumer countries would heighten in a few months' time.
"In May, when the crude demand is increasing, it might slow down world economic recovery," he said.
The European Commission had expressed concern at the possible impact ahead of the widely expected cut. "It is not the right time to do it," said a commission spokesman Friday.
But Khelil rounded on industrialized countries, notably in Europe, for levying high taxes on oil products while blaming OPEC when consumers complain about high prices at the pumps.
"Before they point the finger at OPEC they should probably reduce taxes in their own countries," he told reporters, noting that in Europe crude prices are only 20% of the final pump price.
The 11-member oil exporting group, which has seen prices fluctuate wildly over the last two years, from $10 to over $35 last year, is nervous about a new price slump as demand eases going into summer in the northern hemisphere.
"The conference has taken the decision to stabilize the oil market," said an OPEC statement confirming the cut.
"The present weaker world economy and the traditional sharp downturn in demand" as the northern hemisphere warms up "both clearly point to a need for a correction in oil supply," it added.
The cartel already cut production by 1.5 million bpd in January, in a U-turn of four successive output increases last year to cool record prices that sparked fuel protests last summer, notably in Europe.
OPEC said it would continue to monitor the market and planned to meet again at the beginning of June to review the situation.
But it stressed that "immediate action" would be taken if necessary before the scheduled meeting.
OPEC Secretary General Ali Rodriguez welcomed the "strong support" of major non-OPEC countries such as Norway, Russia and Mexico for the cut.
But analysts said that there appeared to have been a split within OPEC, between members wary of consumer countries' concerns, and others who want to keep prices high to maintain their revenues.
Friday's formal meeting failed to produce an announcement.
OPEC kingpin Saudi Arabia had apparently held out against price hawks who wanted a bigger production cut to boost prices, said Drollas.
"The Saudis have been dragged up. They are saying 'let's worry about the world economy, let's worry about the U.S. economy.' The others are saying 'well why worry about that, this is where our oil demand is'."
But although the cut was at the top of the range of between 500,000 and one million bpd forecast before the OPEC meeting, markets are not expected to react too sharply to the cut when they re-open Monday.
"In practical terms it's already been discounted," said Dresdner Kleinwort Benson oil expert Mehdi Varzi.
"It's compliance that matters," he said, noting that the January reduction had not been strictly adhered to. "Compliance will make the difference. Prices will go down if they don't comply enough."
Drollas said that the actual cut was likely to be around 600,000-700,000 bpd after non-compliance.
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