OPEC keeps cap on oil output to fuel price rise

OPEC keeps cap on oil output to fuel price rise

Peg Mackey and Richard Mably, Reuters, Vienna

OPEC agreed on Friday to keep a cap on oil output for three
months, leaving consumer nations to fret that crude might race
out of control before the cartel eases open the taps.

The Organisation of the Petroleum Exporting Countries is
seeking to cement the price of its export basket in a US$22-$28 a
barrel range and wait for a global economic revival to lift
demand for its oil.

"The price has only just entered the lower end of our band and
we hope it moves higher as the economy recovers," said Venezuelan
Oil Minister Alvaro Silva.

Oil prices have risen sharply in recent weeks after a fourth
quarter slump, spurred higher by signs of an economic upturn and
fears that the United States might target OPEC member Iraq for
military action.

OPEC, planning to meet again in mid-June, is sending mixed
signals about policy intentions for the second half of the year.

"OPEC has to strike a delicate balance between providing a
growing world economy with sufficient oil without force feeding
it and risking weaker prices," said Gary Ross of New York
consultancy PIRA Energy.

"But history shows that it tends to fall behind the curve,
undersupplying the market during periods of rising economic
activity and growing demand. And that forces prices up."

Cartel price hawks say they see no reason to raise output
until prices reach $28 for their basket, equivalent to at least
$30 for benchmark U.S. light crude.

That is $5 above the $18-$25 comfort zone signaled last week
to OPEC power Saudi Arabia by U.S. Treasury Secretary Paul
O'Neill. U.S. light crude eased 15 cents in early electronic
trade on Friday to $24.41 a barrel.

"My hunch is that we will not see enough economic growth such
that we will need to increase production in June," said Algeria's
Oil Minister Chakib Khelil

"We have a range of $22-$28, so why should we raise if it is
not above $28?" added OPEC President Rilwanu Lukman.

But OPEC's biggest and most influential producers may be
preparing to step in and stop prices spiraling out of control and
hurting an economic rebound.

Saudi Oil Minister Ali al-Naimi said OPEC could lift output if
inventories started to drain while his Iranian counterpart Bijan
Zanganeh said he hoped economic growth would prove sufficient to
allow extra output in the third quarter.

"We are looking at satisfactory international stock levels.
When we see that they start to decline we might take a decision
to increase production," Naimi told Arabic newspaper Al-Hayat.

"My impression is that both the Iranians and the Saudis are
inclined towards raising output some time during the second half
of the year," said a senior delegate from another Gulf country.

"If they don't want a repeat of 2000 when prices ran out of
control they will have to increase in the third quarter by at
least another million barrels a day," said Roger Diwan of
Washington consultancy Petroleum Finance Corp.

OPEC restrictions limit 10 member nations to 21.7 million
barrels daily, leaving more than five million barrels a day (bpd)
of idle capacity on the 75 million bpd world market.

That leaves plenty of cover for any loss of output from OPEC
member Iraq if Washington widens its war on terror to take
military action against Baghdad.

Iraq pumps some 2.5 million barrels daily in an exchange for
humanitarian goods monitored by the United Nations, still
enforcing sanctions imposed after Baghdad's 1990 invasion of
Kuwait.

OPEC has persuaded independent producers that joined its
supply management campaign last December to stay on board for
another three months. Ministers are confident Russia will match
Mexico, Norway and Oman in agreeing to keep a lid on output.