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. Last Updated: 07/27/2016

OPEC Set to Gamble With Oil Output Cut

VIENNA, Austria — Like a dogged gambler, OPEC is set for one last roll of the dice in the hope of rediscovering its magic touch on oil prices.

Cartel ministers meeting this week will stretch to the limit their policy of supporting crude prices with supply curbs, by cutting output for the fourth time this year.

Battling an economic decline that is sapping demand for its oil, the Organization of Petroleum Exporting Countries is trying to restore confidence in the world market that it can lift prices, now near $19 for its crude, back toward a $25 target.

"OPEC has been marginalized by a declining world economy and rising non-OPEC supply," said consultant Gary Ross of New York's PIRA Energy.

"This is their last bullet. They have to cut and then hold tight and hope for an economic recovery in the second half of 2002."

Leading Arab OPEC producers like Saudi Arabia at all costs want to avoid a dangerous price collapse that would threaten further instability at a time when their region is wracked by political uncertainties after the attacks of Sept. 11.

At the same time, Riyadh will be wary of upsetting the United States by risking a petroleum price spike while tensions are running so high over Riyadh's role in the anti-terrorism campaign.

OPEC, meeting on Wednesday, is expected to slice as much as 1.5 million barrels daily from output, extending to 5 million bpd, or 19 percent, the supply cuts it has made this year.

New limits to be implemented from December will leave output by the group, which accounts for 60 percent of world oil trade, at its lowest in 10 years.

Ministers know the sacrifice will be worthwhile if they can reverse a price collapse that until late last week had knocked $8, or 30 percent, off the value of a barrel.

They calculate there is more benefit to their export revenues from keeping prices high with volume cuts than defending market share against rising non-OPEC supply at the risk of a price collapse.

Reward for the policy came in a $2-a-barrel uptick in prices at the end of last week after leading producer Saudi Arabia raised the prospect of a large 1.5 million bpd cut.

"This looked like the pre-Sept. 11 OPEC — willing to take bold action to support the market," said Washington consultancy Petroleum Finance Corp.

OPEC kept oil prices afloat for two years by matching supply to demand, but has had the rug pulled from beneath it by the deteriorating global economic outlook.

From the consumer's perspective, one of the few consolations of a looming recession is cheaper gasoline — only $1.22 a gallon on average nationwide in the United States.

In the U.S., low prices fueled a startling upturn at the pumps last month with motorists burning nearly 4 percent more gasoline than during the same period last year.

And consumer countries are warning that by artifically propping up the price of crude, OPEC risks inflicting further damage on a fragile world economy.

"In a period when the global economy is on the brink of recession, price effects become much more significant," said Klaus Rehaag, of the International Energy Agency in Paris.

"The last thing you want to do is push demand down. It is already already weak enough. But that's the danger we are seeing," he said recently.

OPEC is hoping for some return on the huge efforts it has made in lobbying non-OPEC exporters Russia, Mexico and Norway for their support in managing oil output.

Saudi Arabia's Ali al-Naimi, OPEC's most influential minister, was in Moscow on Monday after a meeting in Madrid, Spain, on Sunday with his Mexican and Venezuelan counterparts. Al-Naimi was to go to Norway on Tuesday.

Norway has said it has no plans now to curb its oil output. Mexico has yet to signal its clear intention to help OPEC this time.