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Last Updated: Sunday, 28 March, 2004, 13:08 GMT 14:08 UK
Opec mulls wisdom of output cut
Oil worker
A combination of factors is forcing up prices
Oil cartel Opec is set to activate cuts in output of 1 million barrels a day on 1 April - but pressure is building for the decision to be reversed.

Some of the pressure is coming from customers such as the US, which is worried that prices rose almost to $40 a barrel earlier this month.

But experts say producers themselves may resist the cuts, to take advantage of the soaring prices.

Late on Friday a barrel of oil was $35.73 in New York and $31.99 in London.

"You'd have to be a complete idiot to cut production when prices are at these levels," said Adam Sieminksi of Deutsche Bank in London.

The impending cuts in production are only part of the reason for the soaring price.

Worries about global security are another, while tight supplies and US buying to refill its Strategic Petroleum Reserve are also contributing to the gains.

White House officials have made public their displeasure with the planned cuts - particularly with gasoline prices rising to levels last seen in the mid-1980s.


The 11-nation cartel itself is divided over the wisdom of pressing ahead with the cuts.

In theory Opec, provider of a third of the world's oil, has committed itself to keeping prices within a $22-28 band.

Some members, such as Nigeria and Venezuela, want the band raised because of the current weakness of the dollar.

But earlier this week Opec President Purnomo Yusgiantoro said the meeting in Vienna on Wednesday would discuss keeping production at the current 24.5 million barrels a day, or even raising it, as well as the planned cut.

Extra pumping

In fact, production through March may be as high as 26 million barrels a day given the rampant over-production usual among most members, according to London's Centre for for Global Energy Studies.

The over-production may mean that even if the cut officially goes ahead, real output may not change much.

The CGES says Opec can threaten cutbacks which force the price up - and then may not have to follow through, thus reaping a double dividend.

But it also warns that Opec may have miscalculated the size of the oil market.

"Oil demand is still being underestimated," it said in its March monthly report, "and the market is much tighter than... Opec's supply/demand balances suggest."

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