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OPEC Expects Oil Prices to Recover as Cuts Are Made (Update1) Dec. 11 (Bloomberg) -- OPEC, the producer of more than a third of the world's oil, expects prices will recover from their second-largest drop this year as members enforce their decision to lower output, ministers said.
Brent crude oil fell $2.29, or 5.8 percent, to $37.38 a barrel in London yesterday, as traders doubted the Organization of Petroleum Exporting Countries will reduce supply by 1 million barrels and meet its quota of 27 million a day.
``Don't ask me about the oil price fall yesterday, it was nothing,'' Ali al-Naimi, the Saudi oil minister, told reporters in Cairo today. ``The important thing is for the market to reach stability.'' Saudi Arabia has already told customers of a cut of 500,000 barrels a day, and not just of a low-grade crude called Arab Heavy, he said.
Oil prices remain 26 percent higher than a year ago and are poised for the fifth annual gain in six years, restraining world economic growth and hurting profit at airlines and chemicals manufacturers. The International Energy Agency, an adviser to oil- importing countries, yesterday said OPEC shouldn't reduce supplies until world oil inventories increase.
The 11-nation OPEC hasn't met its self-enforced production quota since January 2001, and last month pumped 1.22 million barrels a day more than promised.
Cut Allocations
To meet the accord, Saudi Arabia, Kuwait, the United Arab Emirates, Nigeria, Libya, Algeria and Qatar will each reduce output by 5 percent, said Fathi Shatwan, Libya's representative to OPEC. Iraq has no quota, and OPEC members Iran, Indonesia and Venezuela are at or below their current targets.
The allocation of the cutbacks ``wasn't very clear to the market,'' Shatwan said. ``You just take production for every country, and take 5 percent out of it'' for the seven nations. Libya is cutting 80,000 barrels a day, he said.
OPEC will meet again Jan. 30 and is ready to lower supply further as need to bolster prices, the Kuwaiti minister said. Kuwait is reducing output by 120,000 barrels a day, he said yesterday.
``A cut in quotas at the January meeting is inevitable if prices continue to fall,'' Kuwait's Sheikh Ahmad Fahd al-Sabah said today. A reduction of between 500,000 and 1 million barrels a day would be necessary, he said.
OPEC's price benchmark has dropped 26 percent since Oct. 21, the largest six-week loss since demand collapsed after the Sept. 11, 2001, attacks on New York and the Pentagon.
Qatar's minister, Abdullah bin Hamad al-Attiyah, today said he expects oil prices to rise after OPEC's cut begins Jan. 1. His Kuwaiti colleague said it won't take that long.
Decline `Expected'
``We were expecting this kind of reaction'' in the oil market after the decision yesterday, al-Sabah said. ``Monday, I think, when the members start to cut production, the market will be more stable.''
Ministers have been deliberating proposals to increase their formal price target, of $22 to $28 a barrel, to $30 or more to compensate for a weakening dollar and inflation. The benchmark has been above that level for about a year and was last reported at $34.29 a barrel.
Iran wants the OPEC benchmark at $32 a barrel or more. Libya's delegate Shatwan said he is targeting at least $30 to $35 a barrel.
OPEC is concerned that a weakening dollar is hurting the purchasing power of oil revenue. Also, crude oil inventories in the U.S., the world's largest energy consumer, have risen for 11 consecutive weeks.
``The market, the pipeline, is full,'' Saudi Arabia's al- Naimi said. ``The tankers are full and they are heading to the market.'' The agreement made yesterday ``will take time to show in the level of inventories.''
The Saudi minister wouldn't be more specific on the grades of oil output that will be cut, other than to say it won't all be Arab Heavy.
Last Updated: December 11, 2004 05:42 EST
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