OPEC shocks market with output cut

OPEC shocks market with output cut

Michael Adler, Agence France-Presse, Vienna

The OPEC oil cartel on Wednesday shocked oil markets by
signaling a cut in production, sending prices surging as Iraq
returned to the table for the first time since the U.S.-led war
to topple Saddam Hussein and pledged to double oil exports by
next March.

Iranian Oil Minister Bijan Namdar Zanghaneh confirmed to
reporters that, "Yes", the grouping would change its official
output ceiling of 25.4 million barrels per day (bpd).

A source close to OPEC said the amount of the cut was 900,000
bpd, bringing the output ceiling down to 24.5 million bpd.

The 11 OPEC oil ministers were expected to adopt the cut at a
formal meeting later in the day.

News of the surprise move came as Iraqi interim Oil Minister
Ibrahim Bahr al-Ulum announced that Iraq would remain a member of
the OPEC oil cartel, pouring cold water on speculation it might
leave the fold.

He said Iraqi oil exports, currently at 900,000 bpd, were
planned to double to 1.8 million bpd by the end of March.

News of the OPEC cut came as a surprise to oil market traders,
who had widely expected the grouping to leave output levels
unchanged in the fourth quarter of this year.

Consumer countries had called for an output increase to help
to rebuild their low stocks as winter looms in the northern
hemisphere.

Oil prices shot higher in London, with benchmark Brent North
Sea crude oil for November delivery showing a gain of 83 cents a
barrel to US$26.35 within minutes of the news.

World oil prices had fallen by about 15 percent in around a
month ahead of the meeting, taking OPEC's basket price of seven
crudes back into its target range of $22 to $28 per barrel.

OPEC's comments came as Iraq attended its first meeting of the
cartel since the U.S.-led war to unseat Saddam Hussein, marking a
new step towards international recognition for the U.S.-backed
interim government in Baghdad.

OPEC is keen to see Iraq, sitting atop the world's second-
biggest known crude oil reserves, remain in the fold of the
grouping, which produces about one third of the world's oil.

Iraq will remain a member of the OPEC oil cartel while at the
same time significantly boosting output by the end of this
decade, Bahr al-Ulum told a press conference.

"Iraq as a founder member of OPEC has always been consistently
defending OPEC aims and objectives . . . Iraq will continue to do
so," he said.

The minister laid out an ambitious plan to get the Iraqi oil
industry back at full speed, talking of doubling production by
2005.

He said current production was 1.8 million barrels per day
(bpd), two thirds of pre-war levels, something he called "a great
achievement by any standard."

The goal is to get to two million bpd by December, 2.8 million
bpd by the end of March, 3.5-4 million bpd by 2005 and to six
million bpd by the end of the decade.

"It is now no secret we intend to develop fast our huge
resources with the help of the (world) oil industry and other
investors," Bahr al-Ulum said.

Asked if Iraq would favor U.S. firms in rehabilitating its oil
industry, he said: "We welcome all foreign oil companies."

However, Iraq is not yet expected to re-enter the cartel's
quota system, from which it was exempted after UN sanctions,
lifted in May, were imposed on Baghdad following its 1990
invasion of Kuwait.

The ramshackle state of the Iraqi oil industry, ravaged by
three wars in a quarter century, decades of under-investment as
well as recent sabotage and looting, has stymied a recovery in
the country's crude exports.

But with 112 billion barrels of oil, Iraq has the world's
second-largest reserves after Saudi Arabia, according to the
London-based Center for Global Energy Studies.