OPEC May End Automatic Output Increases

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Sat Nov 11 15:28:59 MST 2000


Saturday November 11 12:24 PM ET

OPEC May End Automatic Output Increases

By Tanya Pang

VIENNA (Reuters) - OPEC (news - web sites) producers gathered here for a
Sunday meeting content to sidestep consumer nation calls for further
action on oil supply to ease fuel bills this winter.

 Ministers said the Organization of the Petroleum Exporting Countries
will not adjust crude production allocations that already have been
raised four times this year.

Oil remains well above the group's preferred $22-$28 a barrel range, but
OPEC is more worried about a post-winter price collapse than the impact
of high energy costs on inflation.

 `For sure, I am concerned,'' said Qatari Oil Minister Abdullah

 Support was growing for a suspension of OPEC's troublesome automatic
price band trigger that at the start of November released a small dose
of extra supply after cartel crudes stayed over $28 for 20 days.

That failed to push crude below the $28 threshold and, unless the market
dips sharply, the rules of the price band device would mean another
increment before the end of the month.

``We have to review it with our colleagues and see how effective it has
been,'' said Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah. ``We have
tried it once and it had no effect on the market.''

``If prices stay high because of factors unrelated to the supply of
crude it would be irrational to keep triggering production increases,''
added an OPEC delegate.

Ministers blame refinery and shipping bottlenecks, market speculation
and consumer taxes for stubbornly high

 Far from lifting output again, ministers now want to plan the timing of
a production cut to ensure prices don't collapse next year below the
preferred floor of $22 a barrel.

``We will not take a decision to cut production at present, but if (a
price fall) happens in the coming months we will take a decision to cut
production,'' OPEC Secretary-General Rilwanu Lukman said on Friday.

Inventories On The Mend

 Aggregate OPEC output increases this year of 3.7 million barrels daily,
16 percent, have yet to show up fully in industry stockpile data.

The International Energy Agency said this week that inventories at the
end of September left serious concerns about winter heating oil supplies
in the West.

 But while stockpiles fell alarmingly during the fourth quarter of 1999,
extra OPEC oil should see a small contraseasonal stockbuild during that
period this year, wiping out a year-on-year deficit.

Industry analysts believe crude flows now are sufficient to replenish
the inventory deficits and leave importing nations more comfortably
placed once the peak winter demand season is completed.

The prospect has raised alarm among some OPEC nations who want to start
preparing now to prevent any severe downward spiral in prices.

As ever, OPEC's leading producer Saudi Arabia will be key to any shift
in policy. The kingdom appears more relaxed than some fellow member

``Fears of a price collapse are not warranted,'' said an OPEC delegate
on Saturday of Saudi thinking. ``Prices will fall lower within the
($22-$28) target range on average next year,'' the delegate said.

Others are projecting world supply outstripping demand by a significant
margin next year and believe an output cut is inevitable with only the
timing still to be decided.

Algerian Oil Minister Chakib Khelil expects the group to agree to meet
again in January to consider a supply cut instead of waiting for a
scheduled March conference.

``If they set another meeting for January or February the market will be
reassured that the output cuts will come in time,'' said Anne-Louise
Hittle of Cambridge Energy Research Associates.

``March would make it more risky. There might be a period of weakness
before the impact of the cuts would hit.''

OPEC on Sunday also will give another airing to the thorny issue of who
should succeed Lukman as the group's chief administrator. No clear
favorite has emerged among the candidates from Saudi Arabia, Iran, Iraq
and Libya. Selection requires unanimous support from 11 members.


Xxxx Xxxxx Xxxxxx
PhD Student
Department of Political Science
SUNY at Albany
Nelson A. Rockefeller College
135 Western Ave.; Milne 102
Albany, NY 12222

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