OPEC trio seek longer cuts, send oil prices further upward

OPEC trio seek longer cuts, send oil prices further upward
REUTERS

LONDON, Jan 22: Oil markets rose after OPEC oil ministers from Iran, Libya and Algeria urged the cartel to prolong deep output cuts for another six months. Brent benchmark crude for March was last traded 25 cents a barrel higher at $26.35. The contract leaped a full dollar higher to $27.11 a barrel, its highest since the Gulf War in 1991, before slipping to a softer close.

Signs that major OPEC producers will keep oil output curbs in place beyond a scheduled end-March expiry has pulled already sky-high prices up another four dollars 17 per cent in just eleven days.

Gains found fresh impetus as Libyan Energy Minister Abdullahal-Badri told Reuters by telephone from Tripoli that he had agreed with new Algerian Oil Minister Chakib Khalil and Iran's Bijan Zanganeh to propose that OPEC extend supply cuts until September.

The producer group's deal to slash more than four million barrels per day of output has nearly trebled prices in less than a year, fuelling concern among industrialised countries that world economic growth could suffer.

European Central Bank Chief Economist Otmar Issing said there was a danger that a temporary rise in inflation due to surging oil prices would become more permanent if it led to higher wage settlements.

"We see developments in headline inflation heavily impacted by oil prices, which have tripled in 12 months," Issing said in London. "We face a dangerous, fragile situation as wage negotiations are just starting in Europe."

A snowstorm barrelling across the US Northeast has triggered even faster price rises there, lifting US light crude late on Thursday to just four cents off the $30 mark.

Analysts warn that the longer the Organisation of the Petroleum Exporting Countries delays raising output, the more volatile the price of the strategic commodity will become. "The longer they wait, the more acute their problems," said Standard Bank in London. "Lower stocks promise only instability."

"The lower stocks are drawn down below normal levels, the higher OPEC's new output levels will eventually have to be, and the bigger OPEC's potential problem later."

Low global stocks: Behind the wave of buying are fears that world stocks have fallen too far. Forecasts of abnormally cold weather in parts of the US Which consumes a fifth of world oil can only squeeze supplies further and drain stocks at an even faster rate, traders said.

Paris-based International Energy Agency (IEA), the West's energy watchdog, warned on Thursday of a potential severe supply shortage if OPEC kept a lid on production at current levels.

Global supplies could be as much as three million barrels per day below demand in the first quarter and as much as 1.5 million bpd below requirements in the second quarter, it said.

Saudi Arabian Oil Minister Ali al-Naimi, OPEC's most influential policy maker, said last week that he was content with market conditions and could see no reason to change production policy for the remainder of 2000.

"The market needs more oil now," the Paris-based group said. US Energy Secretary Bill Richardson is due to meet oil ministers from OPEC states Saudi Arabia, Kuwait and Venezuela at the Davos economic summit in Switzerland at the end of January.

Richardson's office has said he remained concerned about the cost of oil but believes market forces must set prices. That leaves little prospect of any release from the huge hoard of inventory held in the US strategic Petroleum Reserve.

The signals coming from OPEC are for longer restraint to keep prices sizzling and repair financial damage inflicted by a price slump in 1998. A senior Iranian oil official told Reuters from Tripoli on Thursday there was "growing sentiment" in OPEC for an extension of the current level of production beyond March.

Iranian officials have said Zanganeh will brief Badri and Khalil about a recommendation by an OPEC committee last week to extend OPEC's current output cuts beyond March.

Other producers have suggested extending current export curbs to September. OPEC is scheduled to decide policy at a meeting in Vienna on March 27. Added impetus for prices has came from a severe cold spell in the northeastern United States, the world's largest heating oil market.

OPEC's agreement of March 1999 removing 4.3 million barrels a day from the 75 million bpd world market has already left world petroleum inventories close to historic lows.