Crude Oil Steady as OPEC Seen Cutting Output to Protect Revenue

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Crude Oil Steady as OPEC Seen Cutting Output to Protect Revenue

London, Jan. 15 (Bloomberg) -- Crude oil was little changed, after four straight gains, on expectations that OPEC will cut production this week for the first time in two years in a bid to raise prices and protect its revenue.

Ministers hope the cut, which many have said should be at least 1.5 million barrels a day, will be enough to reverse last month's 25 percent decline in prices. Revenue for members of the Organization of Petroleum Exporting Countries, excluding Iraq, is forecast to have risen 75 percent to $280 billion last year, research this month from Emirates Industrial Bank showed. ``One and a half million will be the absolute minimum,'' said Peter Fanis, an options trader with Standard Bank. ``The market would feel that was adequate, it's already in the price.''

Brent crude oil for February settlement was recently up 5 cents, or 0.2 percent, at $25.80 a barrel in late-morning trading on London's International Petroleum Exchange.

The London market will shut about two and a half hours early today, as the New York Mercantile Exchange is closed for the Martin Luther King Day holiday. In the U.S. on Friday, crude oil rose above $30 a barrel for the first time in a month.

The difference between London's Brent February crude oil contract and the U.S. West Texas Intermediate contract for the same month is $4.30, compared with a weekly average of $1.45 over the last five years. That likely reflects a rise in tanker transportation costs across the Atlantic, traders said.

OPEC increased output four times last year, to a 21-year high, as prices rose to levels not seen since the 1990-1 Gulf conflict. An output cut of 1.5 million barrels a day, a figure backed by many within the 11-member group, would equal about 5.4 percent of its December output.

Wednesday Meeting

The group, which accounts for about 40 percent of world output, meets Wednesday in Vienna. Saudi Arabia and Venezuela's oil ministers are to arrive today, while Iraq's oil minister is not expected to attend, OPEC officials said. ``I believe that the position will be between 1.5 and 2 million barrels per day,'' OPEC President and Algerian Oil Minister Chekib Khalil told Agence France-Presse on Sunday.

The cuts would ease concerns about an oil glut in the second quarter. Demand typically falls to its lowest rate of the year then, after the end of the winter heating season in the Northern Hemisphere and before peak gasoline demand from vacationing motorists kicks in.

A major oversupply could push prices back down below $10 a barrel, as it did in 1998 during the Asian economic crisis. OPEC members saw a plunge in revenue, four-fifths of which can come from oil exports. By 2000, the situation was reversed and Saudi Arabia, the world's largest crude oil exporter, said it would post its first budget surplus in 18 years.

U.S. Slowdown

Higher oil prices may exacerbate an economic slowdown in the U.S., which consumes a quarter of the world's oil. Outgoing Energy Secretary Bill Richardson is on a tour of the Gulf and Europe ahead of OPEC's meeting, trying to convince the group's producers to limit their cuts.

The European Union considers $20 to be a ``reasonable'' price for a barrel of oil, EU Energy Commissioner Loyola de Palacio's spokesman, Gilles Gantelet, told journalists in Brussels.

OPEC is also concerned about the scale of its cut as output from Iraq remains sporadic. Most of Baghdad's crude oil exports are under United Nations supervision following the imposition of sanctions on the nation after its 1990 invasion of Kuwait. Since December, Iraqi exports have been interrupted by a series of pricing disputes both with the UN and buyers.

A full resumption of Iraqi exports may add as much as 1.5 million barrels a day back onto world markets, effectively canceling out OPEC's expected output cut. Iraq does not have an OPEC production quota and was the group's fourth-largest producer in November.

Oil prices this year are forecast to average less than they did last year even with an OPEC production cut next week, a Bloomberg survey of analysts and traders found.

The analysts saw New York crude oil, on average, at $27.20 a barrel in the first half of the year and $26.14 in the second half. Oil soared last year, rising from an average $28.80 in the first half of 2000 to $31.74 in the second half.

That will depend on the level of OPEC's compliance with its pledged quotas. ``We believe major producers Saudi Arabia, Venezuela and Iran will comply,'' Salomon Smith Barney said in a research note. ``We are less certain that the rest of the group will be willing to forgo the extra revenues.''

http://quote.bloomberg.com/news2.cgi?T=energy_topnews.ht&s=AOmLmyBZUQ3J1ZGUg



-- Martin Thompson (mthom1927@aol.com), January 15, 2001


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