January 15, 2001. Copyright 2001. Graphic News. All rights reserved.

WORLD PREPARES AGAIN TO PAY MORE FOR ENERGY

LONDON, January 15, Graphic News: OIL cartel OPEC is expected to announce reductions of between 1.5 million and 2 million barrels per day (bpd) when it meets on Wednesday (January 17) in Vienna and shun U.S. calls for a smaller cut.

ÒWhat we are trying in the meeting is to reduce production so that we get back to the balance between supply and demand,Ó said Iraqi oil minister Amir Muhammed Rasheed.

ÒWe are not in any way affecting the world economy or trying to create a recession; rather, we want to defend normal, fair prices,Ó Rasheed told CNN television from Baghdad.

The statement came as U.S. Energy Secretary Bill Richardson toured six OPEC nations to try to persuade oil producers to keep a lid on prices.

ÒOur data shows that (rumored) production cuts of 2 million to 3 million per day as some are suggesting will be unhealthy and will (cause) prices to rise,Ó Richardson said late Saturday.

Several OPEC members, led by Saudi Arabia, have called for cuts totaling 1.5 million bpd -- or 5 percent. Price hawks Kuwait and Qatar have argued for even deeper cuts of up to two million bpd, while Indonesia, the cartelÕs only Asian member, and Venezuela also support a cut of up to two million bpd.

Saudi Arabia, OPECÕs biggest producer, has informed customers that it will trim its quota by 500,000 bpd and Iraq has already slashed its crude exports by an estimated 1.7 million bpd, shipping just 600,000 bpd in December. Iraq sends 40 percent of its oil to the United States.

Influential former Saudi Arabian oil minister, Sheik Ahmed Zaki Yamani, has added his voice to calls for OPEC to suspend its proposed cuts.

ÒThe first step is not to cut production on January 17 (but) to wait and see what the Iraqis will do,Ó Yamani said.

Yamani, who served as Saudi ArabiaÕs oil minister for 25 years until 1986, argued that if OPEC slashed output in an effort to strengthen prices, it would ÒdefinitelyÓ create a shortage of crude and prices would surge as a result, though he did not quantify the size of the likely increase.

Oil prices peaked at more than $37 last year, then drifted lower before rebounding to OPECÕs preferred range of $22-28. But Kuwaiti oil minister Sheikh Saud Nasser al-Sabah has said that $22 a barrel is unrealistic, Saudi Arabia prefers a price around $25 a barrel and VenezuelaÕs president Hugo Chavez favours $30 a barrel as a ÒfairÓ price.

For his part, Richardson is trying to persuade producing countries to keep the price of oil at about $25 to $28 a barrel, which he called Òthe ideal price for producers and consumers.Ó

OPECÕs proposed cuts have added strength to President-elect BushÕs call to allow drilling for an estimated 10 billion barrels of oil in the coastal strip of the Arctic National Wildlife Refuge in Alaska, to reduce reliance on foreign supplies.

Saudi ArabiaÕs Yamani is in little doubt of the dangers OPEC faces by hiking the price -- the return to $30-a-barrel crude will only hasten the day when OPEC will be left staring at untouched fuel reserves, marking the end of the oil-boom era. 

ÒIncreasing the price of oil in the 1970s was a serious mistake. OPEC used to have 70 percent of the worldÕs production and it fell to 30 percent. The same mistakes are being made.Ó

On Friday, light sweet crude oil rose 64 cents to $30.05 a barrel on the New York Mercantile Exchange (NYMEX). In London, the price of Brent crude rose 14 cents a barrel to $25.75.

Most people in the industry agree that, while prices will stay higher at least for the next six months, it is likely to be another case for OPEC of short-term gain, long-term pain.
/ENDS
Sources: Reuters, Associated Press, Platts Commodity News