Energy chiefs from OPEC countries converge on Vienna this week to rubber-stamp a swinging cut in production aimed at putting a floor under prices that have tumbled in recent weeks.
Oil ministers from the 11-nation Organization of Petroleum Exporting Countries are likely to agree to slash output by 1.5 million barrels per day -- some five percent of total production -- though some more hawkish cartel members want even steeper cuts to support prices.
The price of crude oil has slumped by almost one-third from highpoints above $35 a barrel in October to around $25 so far this year.
On Friday evening, Brent crude stood at $25.63, while the US light sweet contract was at $29.43.
OPEC thus faces a very different scenario to the recent feverish market conditions, which forced the grouping to increase output by more than three million barrels a day last year in order to bear down on skyrocketing prices.
However, the tables turned in November, when OPEC ministers warned that output cuts were in the pipeline because global supply had suddenly started to outstrip demand.
More recently, ministers from Iran, Kuwait, Qatar, Venezuela and crucially Saudi Arabia have all come out in favor of staunching supplies to the market.
Saudi Arabia has reportedly even informed some of its customers of a 500,000-bpd cut in its own volumes from February -- roughly equivalent to its share of a 1.5-million bpd OPEC squeeze.
Few OPEC ministers appeared greatly concerned by the prospect of fitful Iraqi exports, suspended briefly in December amid a row with the United Nations over the oil-for-food program, depriving the market of much needed volumes.
But the likelihood of a cut in supplies so soon after last year's oil price shock has alarmed consuming countries, not least the world's largest oil importer, the United States, which dispatched its energy chief Bill Richardson to OPEC capitals to lobby against production cuts.
However, analysts do not expect US efforts to bear fruit. "It looks as if it's a foregone conclusion," said London-based oil market analyst Mehdi Varzi of Dresdner Kleinwort Benson. "I expect a cut of 1.5 million barrels per day. They may try to go for more than that, but it's not clear if they will be able to."
Commerzbank oil analyst Clay Smith predicted a 1.3-million-bpd cut, but added that as Venezuela, Indonesia and Iran were currently under-producing by some 200,000 barrels per day, the actual amount would be 1.1 million barrels.
"Although some are calling for a bigger cutback to get us back into a market balance, they don't want it all at one fell swoop," Smith told AFP.
Others agreed that hawks such as Iran and Iraq would be unable to persuade their fellow members to agree a higher cutback of two million barrels per day.
"The Saudis promised 1.5 million and then they announced they were cutting oil to clients," said Salomon Smith Barney oil analyst Peter Gignoux. "If that's the case then there's is no need to look up the magician's sleeve."
"Two million would be a very drastic move. I'm not sure that 1.5 isn't drastic," he said, noting that OPEC nations had reaped bumper windfalls from high oil prices last year and were now "crying poor" because prices were lower.
As for the effect of the move on prices, analysts said that the promised production squeeze had been factored into the market.
"We were forecasting Brent average of 24 dollars in 2001, and with these adjustments we still think we're on course for that," said Commerzbank's Smith.
"We still believe that global stocks are rising and will rise by 600,000 barrels per day over the year and 2.4 million a day in the second quarter even with this OPEC cutback," he added.
Gignoux said: "Prices should stay in their current range" of 24-26 dollars a barrel because a 1.5-million-barrel cut is "well priced in to the market." – (AFP, London)
By Mark Rice-Oxley
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
