Effect of change in OPEC's output target may be minimal

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Monday October 30, 11:35 pm Eastern Time

OPEC Output Effect May Be Minimal


AP Business Writer

LONDON (AP) -- OPEC members plan to boost their targeted oil output by an additional 2 percent, but analysts say the move is largely symbolic and will do little to reduce prices for consumers.

The Organization of Petroleum Exporting Countries is taking the step to meet its oft-stated pledge to raise output if the average price of seven OPEC crudes remains above $28 a barrel for 20 consecutive trading days. This price stood at $30.91 on Friday -- the 20th day on which it exceeded the OPEC ceiling.

As a result, OPEC plans to pump 500,000 more barrels a day starting Tuesday in an effort to bring down the chronically high price for crude.

Iran and Algeria announced their aim to comply with the planned increase, and an official with the national Saudi Arabian oil company, Aramco, confirmed cartel members had received letters from OPEC president Ali Rodriguez instructing them to do the same.

Rodriguez said Monday in Caracas, Venezuela, that the increase would go into effect at midnight.

Analysts questioned, however, whether the cartel could produce sufficient crude to meet the stated increase.

``It's a paper gesture,'' argued Leo Drollas, chief economist for the Center for Global Energy Studies in London.

OPEC produces almost 40 percent of the world's oil, and relatively small adjustments in its output can cause significant changes in prices. The new increase raises its official quota to 26.7 million barrels a day from 26.2 million barrels.

Saudi Arabia, Kuwait and Qatar already are producing 270,000 barrels a day above current quotas, while most other members are hard-pressed to meet their own existing quotas, Drollas said.

``It's much ado about nothing, which is why the markets aren't taking it very seriously,'' he said.

On the New York Mercantile Exchange, December contracts of light, sweet crude closed up 7 cents to $32.81, while November heating oil futures were down 1.09 cents to 96.33 cents a gallon.

In London, December contracts of North Sea Brent crude were up 19 cents at $31.14 on the International Petroleum Exchange.

OPEC has increased its official production three times already this year, most recently in September, in response to pressure from the United States and other importers. OPEC argues that crude supplies are ample, and it blames recent high prices on refining bottlenecks and high fuel taxes in many consuming countries.

``The market's on a cusp at the moment,'' Drollas said. ``If we get a cold winter, it will tweak up again, but by December, it will start weakening with all this crude sloshing around.''

OPEC members have agreed to try to stabilize prices between $22 and $28 a barrel, calling for automatic increases or decreases in the group's output if prices move beyond these limits for specified periods.

Several analysts have criticized the arrangement as unworkable, and OPEC has been inconsistent in using it.

Other attempts to reduce prices, including a planned 30 million barrel release from the U.S. Strategic Petroleum Reserve by the end of the year, have had little effect.

Both heating oil and crude futures are trading at roughly the same level as they were when President Clinton announced the plan in September.

On the retail level, drivers are paying $1.60 a gallon for unleaded gas in the United States, off their highs earlier this year but still about 30 cents more per gallon than a year ago. Meanwhile, U.S. consumers are already preparing for high heating oil prices this winter; the average cost of heating a home in the Northeast is expected to hit $900 for the whole winter, up $140 from last year, government officials say.

In related developments, a U.N. committee gave Iraq the green light Monday to open a euro-denominated bank account to handle deposits from oil sales -- a victory in Baghdad's campaign to stop using the hated American currency.

The decision eased fears that Iraq would follow through on a threat to disrupt oil exports if its request to start collecting payment in the common European currency was denied.

Iraq exports a whopping 2.3 million barrels a day, and even Saudi Arabia, OPEC's largest producer, would be unable to make up for such a shortfall.

Analysts dismissed the Iraqi threat as political mischief.

``They might rattle the saber for a few days, but I don't think they would engage a permanent supply disruption,'' said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

OPEC oil ministers are to meet Nov. 12 in Vienna, Austria, to reassess market conditions.

-- (in@oil.news), October 31, 2000

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