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Last Updated: Wednesday, 11 February, 2004, 05:58 GMT
Opec output cut criticised by US
An oil worker at the Shuaiba refinery near Basra
Some OPEC members have been breaching quota limits
Oil producers' cartel Opec has agreed a surprise cut in output, pushing oil prices sharply higher and drawing criticism from the US.

The move was called "regrettable" by US Treasury secretary John Snow, who said it would act as a tax on consumers.

At a meeting in Algiers, Opec energy ministers agreed to trim output by one million barrels a day from 1 April.

The weakness of the dollar and concerns that demand will wane in the summer are thought to be behind the decision.

Two-stage cut

The news wrong-footed forecasts that quotas would be left unchanged, pushing March crude as much as 3.2% higher in New York.

It closed up $1.04 at $33.87 a barrel.

Opec, or the Organization of the Petroleum Exporting Countries, accounts for about 40% of world oil production.

The two-stage cut outlined on Tuesday will reduce Opec's oil output by a total of 2.5 million barrels a day, or 10% of total production.

The cartel also ordered members in breach of their quotas to immediately cut output by 1.5 million barrels a day.

Knock-on effect

The move is likely to stir fears about the impact of higher oil prices on the world economy, particularly in Europe, where growth remains sluggish.

Mr Snow said that while the effect on energy costs in the US would not be as much as in previous years, any increase in prices would be unwelcome.

Most analysts had predicted that Opec would refrain from cutting output as oil prices have already broken above the group's preferred range of $22-$28 a barrel.

The weakness of the dollar, which has dropped by about 50% against the euro in the past two years, may have hurt Opec members' ability to pay for foreign goods, analysts said.

Increase?

Also, Opec traditionally tightens supplies in the spring in anticipation of weaker demand during the summer months.

However, United Arab Emirates oil minister Obaid bin Saif al-Nasseri said Opec may raise its production quota again when the cartel next meets on 31 March.

"If we see no need for a cut we may reverse the decision," he said.

Opec last agreed to reduce its production quota in September, when it trimmed output by 900,000 barrels a day.


WATCH AND LISTEN
Steve Turner, oil analyst, Commerzbank.
"OPEC has been producing above quota in recent months."



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