OPEC holds oil output steady despite fragile global economy

Mar 15, 2002 01:00 AM

OPEC energy ministers said they had agreed to leave oil output levels unchanged until the end of June, despite warnings that a rising oil price could jeopardise a fragile global economic recovery. Energy chiefs of the OPEC were expected to rubber-stamp the agreement at a formal meeting.
Ministers said they would meet again in June to review the situation. But they signalled that they would raise output in the third quarter only if prices kept climbing, attributing the recent upswing to sabre-rattling between the United States and Iraq rather than a recovery in demand for crude.
"I don't think so, particularly because the demand is very modest and the growth is very modest," OPEC Secretary General Ali Rodriguez told when asked whether OPEC might start pumping more oil in June. The 11-member OPEC grouping slashed output last year in a bid to stem a slide in crude prices triggered by a global economic slowdown, which was aggravated by the September 11 terrorist attacks on the United States.

The price slump has left OPEC producers nursing a steep fall in oil receipts. But OPEC members are reluctant to raise output again too soon for fear of swamping world markets with crude and reversing a strong recent recovery in crude prices. Oil prices surged again in early trading in London. A barrel of benchmark Brent North Sea crude oil for April delivery jumped to $ 24.80 a barrel from $ 24.06, the highest closing price since September 11.
Comments from the Russia, the largest non-OPEC producer, that it was "technically prepared" to extend its oil export cuts until the end of the second quarter also helped buttress prices. "Russia is technically prepared," Russian deputy minister of oil Oleg Gordeev said through an interpreter. "The final decision will be taken next week," he added.

Russia is not a member of OPEC. But its agreement to curb export by 150,000 bpd from the start of the year was seen as crucial in sealing an producer pact to skim almost 2 mm bpd of oil from world markets, of which OPEC's share was 1.5 mm bpd. OPEC ministers say they are confident Moscow will continue to toe the line, while non-OPEC producers Norway and Mexico have agreed to extend their own export curbs even if Russia does not, helping to buttress crude prices. But some analysts are warning that by reaping the rewards of a rising oil price now, OPEC could also slam the brakes on a tentative global economic recovery.
"They are playing a bit with fire," said Leo Drollas, an oil expert at the London-based Centre for Global Energy Studies. "If prices go up high in the third quarter and into the fourth that will knock the (global economic) recovery on the head," he told. "Whether they are worried about that I don't know. The prices are up and they're enjoying revenue gains that they didn't expect." OPEC ministers also know that much of the recent upswing in prices is the result of concerns in the market about possible US-led military action against Iraq.

Few oil traders have forgotten the impact of past occasions when Iraq has been pitted against western oil importers, notably after the 1990 Iraqi invasion of Kuwait, which saw oil prices shooting up, dealing a blow to the global economy. But experts say that if such concerns abate, the oil price could easily fall by two or $ 3 a barrel.

Source: AFP
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