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EDITIONS
Tuesday, 3 September, 2002, 23:14 GMT 00:14 UK
Oil price slumps as war fears recede
Delegates look at oil model during the congress
Markets are now waiting for Opec's next move
Oil prices have fallen sharply - shedding as much as 4% - following promises by leading oil producers to keep prices stable.

A string of other factors contributed to the drop, which took the price of a barrel of Brent Crude oil, the international benchmark, down 96 cents to $26.58.

Opec
Algeria
Indonesia
Iran
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
UAE
Venezuela
Demand for oil is now expected to remain relatively low, after an influential survey suggested that US manufacturing remained weak.

The news sent US share prices tumbling, further undermining expectations of an economic recovery and higher demand for oil.

And worries about a second Gulf War, potentially disrupting Middle Eastern oil supplies, receded as well.

Traders said Iraq's diplomatic offensive over the issue of United Nations weapons inspections was designed to head off a US military attack and calmed market fears.

Fears that military tensions could reach crisis levels had driven oil prices close to the $30 a barrel level during recent weeks.

Opec promise


We are not overly interested in very high prices, they are counterproductive, but low prices are equally detrimental

Rilwanu Lukman, Opec president

With London's Brent Crude price setting the lead, the US benchmark Nymex crude oil followed. The price of a barrel for October delivery fell $1.19 or more than 4% to $27.79 - its lowest level in two weeks.

The markets are now watching the next move of the oil cartel Opec, the Organisation of Petroleum Exporting Countries, which is due to meet on 19 September.

Opec has pledged to keep oil prices in a range between $22 and $28 a barrel, but tracks the price of a basket of Opec-produced oil varieties, which currently stands at just under $27.

There has been speculation that Opec might decide to increase its output, to put an end to the seemingly unstoppable trend of rising prices during recent months.

Offshore oil rig - Angola
Demand for oil is now expected to remain relatively low

Opec president Rilwanu Lukman promised that cartel members would fill any oil market shortage during the coming winter in the Northern hemisphere. "If there is a shortage, we will fill it," Mr Lukman said.

He was speaking at the 17th World Petroleum Congress in Rio de Janeiro, an annual gathering of the world's leading oil companies and oil-producing countries.

In the United States, oil reserves are already at a 17-month low - one of the reasons for the recent price surge.

A flood or a shortage?

Abdallah Jum'ah, president of Saudi Arabia's top oil producer Saudi Aramco, added his voice, saying his country had plenty of capacity "that is ready whenever the world wants it".

Abdullah Jum'ah
Jum'ah: Saudi Arabia has capacity "ready whenever the world wants it"

But the signals coming out of Rio de Janeiro and from oil market watchdogs are confusing.

While official energy agencies report that Western oil stocks are low, some analysts say the market is awash with petroleum.

Opec countries, which earlier this year decided to cut production to boost prices, are said to violate their production quotas. According to a survey conducted by the Reuters news agency, output could be 10% above agreed levels.

Opec president Rilwanu Lukman, a Nigerian, tried to downplay the report: "My feeling is that would be overstating it."

And he added: "We are not overly interested in very high prices. High prices for us are counterproductive, but low prices are equally detrimental."

Opec controls about 40% of the world's oil production.

Analysis of the oil market, OPEC, and the alternatives

Key stories:

Analysis

Background
See also:

02 Sep 02 | Business
27 Aug 02 | Business
29 Aug 02 | Business
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