OPEC set to greatly reduce output if oil prices continue to plummet Filed: 04/10/2000

CARACAS, Venezuela (Bloomberg)  Oil prices could plunge further and prompt producers to reduce by a third a 1.5 million-barrel-a-day output increase they agreed to last month, OPEC's president said.

Ali Rodriguez, head of the Organization of Petroleum Exporting Countries, said if the price of the organization's benchmark basket of crude oils remains under $22, a cutback in the planned increase in production will occur. OPEC is expected to announce the basket price dipped below $22 Monday, falling from a five-month low of $22.14 on Friday.

The price "may fall a little further," Rodriguez said in a television interview. "But OPEC has already established a corrective mechanism, and if prices fall below $22 a barrel for 20 consecutive days we'll immediately cut back production."

Rodriguez, who is also Venezuela's energy minister, said the traditional slump in demand for oil during the second quarter also could make the cutback likely. German news agency Deutsche Presse-Agentur reported Monday that Saudi Arabia, OPEC's largest producer, will endorse renewed cuts if prices slip further.

Oil prices have plunged about 30 percent since last month, when they reached nine-year highs. After a meeting last month in Vienna of the 11-member organization, Rodriguez said nine OPEC members agreed to boost oil output quotas by about 1.5 million barrels and keep prices within a $22 to $28 price range.

Crude oil plunged 4.8 percent to a three-month low of $23.85 on the New York Mercantile Exchange Monday. OPEC's basket has been trading $2 to $3 cheaper than New York oil.

The price of Kern River crude continued its drop Monday, falling $1 to $18.25, its lowest price since mid-November. The price of Kern crude has dropped $8.25 since reaching $26.50 on March 7.

The adoption of a price band has led to speculation that traders will try to drive the oil price outside of the range to test the group's resolve to act automatically with adjustments in oil supply.

"The (price) charts look like they fell off a cliff," said Ric Navy, a broker at Paribas Futures Inc. in New York. Rodriguez said he has authority as OPEC president to order small output adjustments before the group's next meeting in June.

"If the price falls I can communicate to each country how much it must cut back," Rodriguez said.

Iran, OPEC's second-largest producer, refused to join the agreement to boost production, and said the move would lead to a price rout. Iraq, another member that doesn't participate in the cuts, also said new production would hurt prices.

Rodriguez said he still expected demand for oil to surge later this year, prompting OPEC to approve further increases in output in June or later this year.

Venezuelan daily El Nacional reported that state oil company Petroleos de Venezuela SA is expected to spend $700 million this year to reactivate oil wells, gearing for more production.

Refined oil products also plunged Monday, in tandem with crude oil. Gasoline for May delivery fell 3.22 cents, or 4.1 percent, to 75.66 cents a gallon on the Nymex, the lowest closing price since Jan. 31 and the fifth drop in six sessions. The May heating oil contract fell 1.63 cents, or 2.5 percent, to 63.16 cents a gallon, the lowest closing price since Dec. 10.

http://www.bakersfield.com/oil/i--1256718731.asp

-- Martin Thompson (mthom1927@aol.com), April 11, 2000