- The Washington Times - Saturday, February 2, 2008

VIENNA, Austria (AP) — OPEC decided yesterday against pumping more oil in a rebuff to Washington and a possible prelude to cuts as early as next month, should the wounded U.S. economy sap demand for crude.

The decision arrived despite U.S. urgings, backed by other major consumers, for more oil on the market to cool prices and relieve inflationary pressures that have contributed to fears of a global economic downturn.

Oil prices dropped nearly $3 a barrel yesterday after the U.S. said employers cut jobs in January, renewing worries that a possible U.S. recession that could eat into oil demand as OPEC ministers suggested.

The 13-nation Organization of Petroleum Exporting Countries insists that supplies were adequate and that speculators and geopolitical jitters, not oil availability, were setting prices.

OPEC said it is focused on near-term expectations: the likelihood of less demand as the Western Hemisphere’s heating season ends and before its summer driving season begins; the prospect of more barrels both from OPEC and non-OPEC nations, and fears that the market will shrivel if economic woes worsen.

“In view of the current situation, coupled with the projected economic slowdown … current OPEC production is sufficient to meet expected demand for the first quarter of the year,” read a statement from OPEC after a meeting of its ministers.

That left questions open about the second quarter, from April to June. While ministers avoided discussion of what OPEC would do during the next meeting on March 5, underlying sentiment for reducing output was apparent.

OPEC President Chakib Khelil said U.S. economic conditions “will probably have some impact on demand.”

Before yesterday’s meeting wound down, Iran’s oil minister, Gholam Hussein Nozari, said, “We think there should be cutting in production.” And Venezuela, another OPEC price hawk, said it might swing behind Tehran.

President Bush led the lobbying for an output increase. The U.S. response to yesterday’s decision was measured.

“Everyone is fully aware that having a reliable and steady and predictable supply of oil is a benefit to the global economy,” said White House spokesman Tony Fratto.

“We hope that they understand that their decisions on oil production have a real impact on the economy,” he said.

Analysts suggested however, that OPEC could soon be pumping less oil, despite U.S. hopes.

“The likelihood that they will cut in March has just increased based on their rhetoric,” said Stephen Schork, whose Schork Report looks at energy markets. “I believe the producers think that the U.S. economy is in recession and they are anticipating a further cutback in demand.”

He and others also pointed to lagging U.S. refinery capacity — an argument often used by OPEC in saying refiners cannot process the crude already on the market.

“In the United States last year, we had 30-35 unscheduled outages,” said Mr. Schork, describing the breakdowns as a “sign of a system that is under mechanical duress.”

Rick Chimblo, former head of exploration for Saudi Aramco, the Saudi national oil company, said the U.S. has not “done anything serious in terms of adding refining capacity … for nearly 30 years.”

OPEC nations, in contrast, plan to expand refinery output by 6 million barrels a day within three years, not only giving them control over much of the world’s crude oil but also extending their influence over gasoline, diesel, heating oil and jet fuel, Mr. Chimblo said.

Prices tumbled yesterday despite the bullish implications of keeping production steady, after the U.S. government said employers cut jobs in January.

Light, sweet crude for March delivery fell $2.79 to $88.96 a barrel on the New York Mercantile Exchange.

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