- The Washington Times - Thursday, April 1, 2004

OPEC yesterday approved a 4 percent cut in production starting today, despite soaring oil and gasoline prices in the United States.

Saudi Arabia — the world’s biggest oil producer and, in the past, the chief U.S. ally in the 11-member cartel — pushed for the cut, citing its expectation that demand and prices will subside at the start of spring as they usually do.

President Bush, under fire from his presumptive Democratic opponent Sen. John Kerry for doing little to combat high oil prices, was “disappointed” with the decision, which came despite behind-the-scenes lobbying by the administration, said White House spokesman Scott McClellan.

“Producers should not take steps that harm American consumers and our economy,” he said.

Economists say the high oil prices will slow growth in the U.S. and world economies and could absorb half of Mr. Bush’s $72 billion of tax cuts for households this year.

The White House said it had talked to Saudi Arabia and two other U.S. allies, Kuwait and the United Arab Emirates, both of which had suggested postponing the cut in light of the unexpectedly robust demand for oil in the United States and China.

But comments by the oil ministers after their meeting in Vienna, Austria, yesterday suggested that U.S. efforts were far from convincing.

Kuwait’s energy minister, Sheik Ahmed Fahd al-Sabah, said he withdrew a proposal to delay the cut because it failed to muster the required unanimous support within the Organization of the Petroleum Exporting Countries (OPEC), which pumps one-third of the world’s oil.

Saudi Oil Minister Ali al-Nuaimi told reporters that record-high U.S. gasoline prices, which are near $1.80 a gallon, are not the result of a shortage of oil on the world market, but rather of “the growing number of cars” on American highways and a 28-year lapse since the last gasoline refinery was built in the United States.

“When we speak with U.S. officials, they know precisely what’s happening on the market and that OPEC has nothing to do with the rise in prices,” he said.

Mr. al-Nuaimi also blamed the near 13-year high in New York oil prices, which closed at $35.76 a barrel for premium crude yesterday, on speculators who are betting that demand for oil will be steady or rise rather than fall as it usually does in the spring.

OPEC President Purnomo Yusgiantoro attributed the high prices to tight supplies of gas in the United States, not shortages of crude oil, from which gasoline is refined.

“Crude is not a problem … the U.S. gasoline market is,” he told reporters in Vienna. He pointed out that gasoline prices usually follow oil prices higher, but this time the opposite has been occurring in the United States.

Gas prices at the pump hit a record high last month, and some analysts are predicting that oil will follow with a record of more than $41 a barrel in the months ahead, as the country gears up for its peak summer driving season.

The OPEC president said another reason for the production cut is the cartel is “concerned about the low value of the dollar and the effect this is having upon our petroleum revenues.”

All oil sales are denominated in dollars, and the dollar’s fall of more than 15 percent against other world currencies in the past two years substantially has cut OPEC’s purchasing power.

In the end, even U.S. allies said they didn’t think the production cut of 1 million barrels a day would cause any great problems for world growth, with economic growth recently touching more than 8 percent in both the United States and China.

“The high price is not damaging for the economy,” said United Arab Emirates minister Obaid Bin Saif al-Nasseri. “If you look at growth in 2003, it was higher than 2002, but the oil price was higher.”

Economists estimate that a sustained $10 increase in oil prices, about equal to the rise in the past year, subtracts about 0.5 percentage point from growth.

The production cut did not have an immediate effect on oil prices yesterday because it had been widely anticipated and because analysts expect OPEC members to keep producing above their new collective quota of 23.5 million barrels a day to take advantage of the high prices.

The Kuwaiti minister said he expects output to stay between 25 million and 26 million barrels a day. OPEC members often “cheat” and produce above their quotas when prices are high.

Iraq is a member of OPEC, but is not subject to quotas. Its production recently rose to 2.5 million barrels a day, the level that prevailed before the U.S. invasion a year ago.

About 2 million of that is exported, and the country hopes to raise exports by another 400,000 barrels this year.

Mr. Bush is under fire because he campaigned on a pledge to use his “political capital” to influence OPEC when oil prices were soaring during the 2000 presidential campaign.

“What I think the president ought to do, is he ought to get on the phone with the OPEC cartel and say, ‘We expect you to open your spigots,’” Mr. Bush said in New Hampshire in January 2000.

Yesterday, the White House disclosed it had contacts with OPEC, but they apparently failed.

Mr. Kerry, Massachusetts Democrat, called it a missed opportunity.

“Today, we’re seeing another example of how George Bush’s go-it-alone foreign policy is costing the American people — this time at the pump,” he said.



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