Opec, Iraq keep oil prices strong

Consumers will again call on Opec to resist calls for cuts

Oil prices held recent gains on Tuesday as members of the producers cartel Opec indicated they favoured fresh output cuts and expectations grew of an interruption to Iraqi exports.

In London, Brent crude - the world benchmark - stood at 14 cents up at $27.45 a barrel for April delivery while in New York, light sweet crude futures traded electronically were up 36 cents at $29.52 a barrel.

Rodriguez: Output cut inclination

Opec secretary general Ali Rodriguez had said on Monday there was "an inclination, almost a conviction" among Opec members that they should cut output in March to shore up prices.

He indicated pre-emptive action might be considered necessary because of a traditional drop in crude oil demand, and prices, in the second quarter of the year.

Warmer weather, easing demand

During this period, demand for refined products such as heating oil normally eases in key markets such as North America as the weather warms, so reducing the call on crude oil.

He said the maximum production cut Opec would consider would be one million barrels a day (b/d), representing about 1.3% of January global oil demand.

Analysts said Opec would also be wary of economic slowdown in the United States - the world's biggest oil consumer - which would weaken global oil demand.

Indonesian support for cuts

Some Opec members are more concerned than others that action be taken to cut supplies - in the hope of preventing price falls - before too much evidence of weakening demand emerges.

Indonesia's Mines & Energy Minister Purnomo Yusgiantoro said he would seek support from fellow Opec member Nigeria for further output cuts during a visit to the African country next week.

Earlier this month, Mr Yusgiantoro said Indonesia might propose slicing as much as two million b/d off Opec production.

But Iran's Oil Minister Bijan Zanganeh, visiting world number two oil consumer Japan, on Tuesday took a more cautious approach, saying it was too early to predict whether any cuts would be needed when Opec meets in March.

Venezuela - often a vocal advocate of higher prices - also took a quiet line, with Energy & Mines Minister Alvaro Silva saying on Tuesday he had discussed only general market developments rather than output cuts in a meeting with Saudi Arabia's oil minister, Ali Naimi.

The Iraq factor

Analysts said any Opec plan to cut production could yet be influenced by events in Iraq, which is part of Opec but has not participated in the cartel's output juggling in the past few years.

The US and UK bombing of Iraq in recent days might prompt the Gulf state to halt oil exports in retaliation, they said.

In the event of weaker demand, this might remove enough oil from world supplies to make any wider Opec cut unnecessary.

However, the quantity of Iraqi oil exports is uncertain.

Before the escalation last December of a dispute with the United Nations over oil pricing, Iraq had been exporting about 2.2 million b/d of oil.

But, according to the UN, this dropped to about 850,000 b/d in early 2001 and as little as 230,000 b/d in early February.

If Iraqi exports are truly at such a low level, their disappearance from the market will have virtually no effect on overall supplies.

The perceived effect of their loss could, though, offer temporary support to prices.

Opec criticised

Opec's stated aim is for the price of a basket of seven crudes to remain within a $22-28 a barrel range. And it says it will cut or raise output to achieve this.

But the cartel has faced criticism from major oil consumers for not doing more to keep prices down.

Several members, including Venezuela, are known to view $30 a barrel as a "reasonable" price while some economists in consuming countries argue this is unrealistic, especially in light of more signs of economic slowdown.

Opec ministers are next due to meet on 17 March. At their January meeting, they agreed to slice 1.5 million b/d, or 5.6%, off their supplies.