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Last Updated: Wednesday, 31 March, 2004, 18:28 GMT 19:28 UK
Opec to go ahead with output cuts
Opec headquarters
Most members support the cut
Ministers from the oil producers' cartel Opec have said they will go ahead with a planned oil output cut.

President George W Bush said he was "disappointed" with Opec's refusal to reverse last month's decision.

Opec had been under pressure not to cut output by 4%, or one million barrels per day, from 1 April.

In the US, where oil is trading near a 13-year high, the high cost of petrol is becoming an election issue, and some fear oil could reach $40 a barrel.

Hot potato

The democratic challenger, John Kerry, has criticised President George W Bush, insisting he is doing nothing to reduce petrol prices.

The Bush administration however has accused Mr Kerry of wanting to raise tax on petrol, and stressed it has been having talks with Opec members.

Petrol prices at the pump in the US have risen to an average of about $1.79 per gallon, more than 5 cents up on a year ago, according to figures from the American Petroleum Institute.

Rising demand

Tom James, director of commodity derivatives at Tokyo-Mitsubishi International, said fuel prices have been lifted by rising global demand for oil as well as the threat of Opec output cuts.

"We're seeing a bit of a struggle here between the east and the west in terms of the demand for Opec crude oil," he told the BBC's World Business Report.

"In China, crude oil imports have risen by 30% year on year, and this has pushed prices higher as well."

In the US, light, sweet crude stood at $38.35 per barrel on 17 March, its highest level in 13 years.

Crude oil prices are expected to remain above $30 per barrel in the foreseeable future, having risen 10% so far this year.

Crude is trading 15% above 2003's average price.

Changing policy

One factor in Opec's decision was that oil prices are denominated in dollars, and the falling value of the dollar on international currency markets has reduced the real value of the oil revenue of Opec members.

Some analysts say a production cut is likely to push prices for crude oil to well above $40 a barrel.

That could push the global economy into a slump, and Opec, in turn, could suffer as well if a downturn ends up driving down demand for oil.

So far, most European countries have not yet felt the impact of high oil prices, because they have been compensated by the decline of the dollar against the euro and other currencies.

Brent crude for May delivery traded up 19 cents at 32.64 per barrel in London while US crude for May delivery traded at $36.14 per barrel during the afternoon ahead of the cut.

The BBC's Stephen Evans
"Opec and particularly Saudi Arabia was worried that the price was going to fall"

Why Opec wants production cuts
31 Mar 04  |  Business
Opec mulls wisdom of output cut
28 Mar 04  |  Business
Oil boom sparks fuel price surge
22 Mar 04  |  Business
Oil prices surge to 13 year high
17 Mar 04  |  Business
US petrol prices at all-time high
23 Mar 04  |  Business
Opec still committed to oil cuts
31 Mar 04  |  Business

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