OPEC Members Go Cool on Production Cutbacks

HOUSTON -- Some OPEC members are signaling their reluctance to proceed with announced cuts in petroleum production after crude oil prices climbed in the last week to their highest level since the 1991 Persian Gulf War.

Oil prices eased Monday after the statements, falling 57 cents, or more than 1.5 percent, in New York, to $37.05 per barrel.

The Organization of Petroleum Exporting Countries is scheduled to discuss production quotas at a meeting March 31 in Vienna, but several representatives from member nations, including officials from Qatar and Venezuela, said they were hesitant to cut production significantly.

The statements illustrate a widening gap between the group's announcements and its resistance to carrying out those policies -- particularly one to cut production when elevated oil prices are replenishing the finances of its 11 members. Oil prices have climbed more than 15 percent since January, driving gasoline prices in the United States to record levels while producing budget surpluses in nations like Saudi Arabia, OPEC's most pivotal member.

OPEC had said at a meeting last month in Algiers that it was planning to reduce production by 1 million barrels of crude oil per day, a move that would lower the group's output to 23.5 million barrels per day. OPEC, which accounts for more than a third of global oil production, also called on members to adhere more strictly to previously established quotas.

Neither policy appears to have been adopted by all 11 OPEC members as robust demand for oil continues in Asia, particularly China and India. OPEC cut production by just 150,000 bpd in March, according to data collected by Petrologistics, a company based in Geneva that tracks tanker activity around the world.

"There's very little incentive to lower production when prices are at this level," said Julian Lee, an energy analyst with the Center for Global Energy Studies in London. "The market is simply tighter than OPEC and others had realized."

Strong demand for oil in Asia is one reason for higher crude prices in recent months, though analysts also said that aggressive bets by large commodity speculators have also contributed to the recent run-up in oil markets. Much of the attention on Asian oil supplies is related to the fast-growing economies of China and India.

Long-term forecasts see burgeoning Asian oil demand. It is expected to rise to 38 million bpd from 21 million bpd by 2025, with more than half of the new import demands coming from China and India, said Joseph Ferguson, director of Northeast Studies at the National Bureau of Asian Research in Seattle.

Faced with growing concern over the recent increase in crude prices, Saudi Arabia has been circumspect about its plans for next week's meeting. The Saudi oil minister, Ali al-Naimi, said in an interview over the weekend with an Italian newspaper that he was not prepared to elaborate on whether OPEC would delay production cuts.

"I don't know," Naimi said. "At the moment no one is in a position to say."

Some members may be anxious about a repeat of 1997 and 1998, when oil fell to $10 per barrel after OPEC misread Asian demand for oil. Abdullah bin Hamad al-Attiyah, Qatar's oil minister, told reporters at a meeting in Doha, Qatar, on Monday that OPEC needed to "stabilize" prices to prevent a collapse.

"The market has taken OPEC's statements at face value regardless of the facts," said Kyle Cooper, an analyst with Citigroup in Houston. "It's about time to have a rigid reinterpretation of what OPEC says and what it does."