OPEC: Too Early To Extend Output Cut Pact

Friday, October 22, 1999
OPEC's president said last week that it was too early for the oil producers' group to explore the possibility of extending a global supply curb pact beyond March. "It would be premature to speculate whether a decision will be a rollover or otherwise," Abdullah al-Attiyah, also Qatar's oil minister, told Reuters in an interview. The cartel, which is enjoying renewed clout in sensitive world oil markets since it cut a supply restraint deal with non-OPEC producers in March, is trying to build on the success of the agreement. OPEC kingpin Saudi Arabia and Iran have suggested that the cuts could be extended beyond their expiry in March if market conditions warrant. The oil market, for its part, is waiting for OPEC's next move and wondering whether the group will be able to maintain the high compliance with cuts that has raised prices dramatically since they fell to below $10 at the turn of the year. Attiyah said OPEC's production policy after March will hinge on several factors. "The conference will, in making its decision, take into account the average price levels, world demand forecasts and other relevant elements," he said. Attiyah warned that OPEC should not pin its hopes on short-term price gains. "The market has been fairly dynamic...but the price levels over a short duration are no indicator of market health and whether OPEC objectives have been achieved," he said. OPEC has been plagued by squabbling and production quota violations in the past. But in recent months members have been repeatedly sending a strong message to the market - the cuts will stay in place through to end March, despite higher prices and what some analysts see as a risk of the market overheating. Attiyah did not say what price OPEC was targeting. "The average price of the OPEC basket of crudes since the beginning of 1999 is, to date, less than $3 per barrel better than what it was during the same period of 1998, which was a very lean year for OPEC and other producers," he said. The latest round of OPEC production cuts came in March, when just over two million barrels per day were removed from the glutted market, a move which doubled oil prices. Attiyah dismissed recent sharp drops in prices. "Ups and downs in a free market full of speculators is natural and by now we are used to it. Some short-term price drops are to be expected after such fairly fast increases in the price since July 1999," he said. "In our opinion, there are no changes in fundamentals to support the price decline. In all cases of such abnormal market moves, OPEC's response is immediate consultations and follow ups," he said. Benchmark Brent crude has hovered around $22 a barrel in recent days, more than double the price when the market slumped at the end of 1998 but $2 down from a late September peak. - (Kedar Sharma, Reuters)
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