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Friday, 5 October, 2001, 21:27 GMT 22:27 UK
Oil prices bounce back
Oil worker in Kuwait
Threats to the supply of oil have lifted oil prices
Oil prices floated higher as the week drew to a close, heading back up from a 20% fall since the terrorist attacks on the US.

Opec headquarters in Vienna
Opec has been warned against cutting output
Prices were lifted from Wednesday's lows by speculation that the Opec cartel of oil producers will cut output, and by the threat of military action against Afghanistan.

"After attention to the dire economic projections, the focus seems to be shifting back to the prospect of supply disruption as a result of the impending conflict," a report by NM Rothschild said.

An additional squeeze on supply would arise if the Opec oil producers were to decide to cut output in accordance with their own price manipulation mechanism.

Outside the range

The Organisation for Petroleum Exporting Countries' own rules allow for a cut of 500,000 barrels a day if the average price of a basket of seven crude oils fall below or rise above a range of $22-28 per barrel.


I think that the Opec members should be cautious about changing production decisions

Spencer Abraham
US Energy Secretary
This was expected to have happened on Friday, though it will not be known for certain until Monday when Opec releases the average price.

On Sunday, oil ministers from Saudi Arabia, Iran, Algeria and Venezuela, together with non-Opec member Mexico are reported to be meeting to discuss production levels.

Speculation among traders that Opec would announce a cutback early next week helped fuel oil prices on Friday

The benchmark Brent North Sea crude oil for November delivery rose to $22.63 per barrel on Friday afternoon.

That was still below last week's $23 per barrel, though an improvement from a couple of days earlier when the price fell below $22 per barrel due to concern about faltering global demand.

Cut unlikely

Experts warned against taking a cut in output for granted.


Nothing has been ruled out

Ali Rodriguez
Opec
"I don't think Opec will react so quickly, neither this week nor the next," said an insider who wanted to remain anonymous.

On Thursday, Opec president Chakib Khelil said a cut in output ahead of US military action against Afghanistan was unlikely.

"We don't want to make a decision just before that happens," he said.

"Our objective is to make sure that we don't enhance any price increase that could result from the attack, if there will be one."

Warning

On Friday, the US energy secretary Spencer Abraham issued a thinly-veiled warning to Opec not to stray from that chosen path.


We are confident that Opec will be prepared to take further action to support the oil price in the coming months

Morgan Stanley
"I think that the Opec members should be cautious about changing production decisions," he said.

"We don't want to see [changes in] the level of supply affecting economic growth.

Consultations

Despite such strong indications that a cut is unlikely, traders remained uncertain after Opec secretary-general Ali Rodriguez failed to offer any assurance.

"There are consultations under way between Opec ministers and some ministers outside the group," he said.

"Nothing has been ruled out."

If a cut in output does not come next week, there may well be reductions later this year or early next year.

"Faced with the alternative of losing control over the oil market, continued supply side discipline is the best option for Opec in revenue terms," said a recent report by Morgan Stanley analysts.

"We are confident that Opec will be prepared to take further action to support the oil price in the coming months."

See also:

04 Oct 01 | Business
Opec faces up to low oil prices
04 Oct 01 | Business
Premier faces Pakistan gas flare-up
27 Sep 01 | Business
Opec keeps oil production steady
25 Sep 01 | Business
BP cuts petrol prices
24 Sep 01 | Business
Oil prices sink to year low
17 Sep 01 | Business
Oil reverses post-attack surge
13 Sep 01 | Business
Attacks shake oil and gold prices
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