- The Washington Times - Friday, December 13, 2002

VIENNA, Austria (AP) Saudi Arabia and several other OPEC members persuaded other member nations yesterday to cut oil output to deal with overproduction on the world market.
The 11-member Organization of the Petroleum Exporting Countries said the agreement would lead to a net reduction of 1.5 million to 1.7 million barrels a day in OPEC's actual output. Consumer prices are not expected to be affected.
To achieve that goal, the group will take a counterintuitive approach of raising its formal target for oil production in hopes that members will adhere more strictly to the new quota.
Analysts estimate that OPEC is producing as much as 3 million barrels a day above its existing target of 21.7 million barrels. This gap between OPEC's target and its actual output widened during the autumn, leading many observers to question the group's credibility.
OPEC supplies about one-third of the world's crude.
Under the plan, which was proposed by Saudi Arabia, OPEC's most powerful member, the new production target will be increased by 1.3 million barrels a day, or 6 percent, to 23 million barrels effective Jan. 1. At the same time, OPEC urged members to comply with their new quotas, OPEC President Rilwanu Lukman said at a news conference.
Relations between Saudi Arabia and the United States, which consumes 19.6 million barrels of oil a day, have been strained since the September 11 terrorist attacks, in which 15 Saudi citizens were involved. Congress has begun an inquiry into a money trail from the Saudi government to two of the 19 hijackers. Other sources of tension include perceived U.S. bias in favor of Israel, and the U.S. campaign against Iraq.
OPEC is fearful of oversupplying the market ahead of a seasonal, post-winter decline in demand in key markets in the Northern Hemisphere.
The new target will last indefinitely, Mr. Lukman said, speaking after oil ministers reached their agreement in a formal meeting at the cartel's headquarters in Vienna.
Analysts said the agreement would have a minimal impact on consumers.
"This isn't designed to create a wholesale upward shift in crude prices," said Mike Rothman, an energy analyst at Merrill Lynch in New York.
In assessing the oil market, OPEC delegates had to consider immediate disruptions to global supplies in Venezuela and the Persian Gulf. A national strike in member state Venezuela has paralyzed oil shipments from that country, the world's fifth-largest crude exporter. The strike entered its 11th day yesterday.
The unrest in Venezuela has compounded uncertainty about the impact a U.S.-led military attack might have on oil production in Iraq, home to the world's second-largest oil reserves after Saudi Arabia.
"We wish to reassure consumers that we will do everything we can to maintain steady, secure supplies of crude at all times, to cover any eventuality that may arise. We have sufficient spare capacity within our organization to do this," OPEC's Mr. Lukman told delegates at the start of the meeting.
Mr. Lukman said other OPEC members were willing to help Venezuela "any way they can" to meet its obligations for crude shipments to customers. The Venezuelan government has not requested any help.
Due to the current level of quota-busting, OPEC expects the quota increase to occur on paper only and not add any fresh barrels to the market. Ministers said compliance with the new quotas is crucial to the plan's success.
"All member countries have committed themselves to that," Mr. Lukman said.
However, he acknowledged that some member countries might not have the political will needed to pump less oil in the hope of keeping prices firm.
"That's something else," he said.


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