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Last Updated: Monday, 8 March, 2004, 10:57 GMT
Oil cut backed despite high price
Oil worker
A combination of factors is forcing up prices
The president of oil cartel Opec has promised the group will "guarantee" oil flows when prices are high.

But though oil is at $37 a barrel in the US, the highest level since prices soared ahead of the war on Iraq, he said planned output cuts will go ahead.

The 1 million barrel/day cut - and a 1.5 million barrel slowdown in oversupply - kicks in on 1 April.

But prices are already rising because of tight supplies in the US and political instability in Venezuela.


The cuts may not be as extreme as Opec is promising.

The 14-nation grouping's members routinely breach their quotas - as the attempt to cut oversupply demonstrates.

With prices so high, some may well choose to ignore the strictures so as to increase income, particularly since the US dollar - the currency in which oil prices are denominated - is weak at the moment.

The actual effect of Opec's cutback will be felt in the next few days, as buyers receive information from countries such as Saudi Arabia, Kuwait and Iran of how much oil they will be shipping.

If the cuts look likely to stick, the current $37 a barrel paid for US light crude and $33.50 for Brent crude in London could rise further.

That, says the International Energey Agency, could hurt developing countries in particular.

"We would welcome a restoration of more normal stock patterns and flows, and a little bit less effort to micro-manage," said WIlliam Ramsay, head of the group which advises 26 countries on energy policy.

The BBC's Shola Olowu
"Washington fears a repeat of last year's events"

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