OPEC promises to slash oil supply

The OPEC oil cartel yesterday promised to slash two million barrels per day (bpd) of excess oil from the market, although analysts warned that the reduction would be closer to one million barrels, writes Carola Hoyos in Vienna.

OPEC said it would reduce its output to 25.4 million bpd in the hope of forestalling a slide in prices to below the group's preferred range of $22-$28 a barrel.

"We are removing two million barrels a day from the market and we will make it clear that this is the first step to another possible reduction," said Mr Rafael Ramirez, Venezuelan oil minister.

Crude prices slumped to five-month lows after the announcement, which surprised the market.

IPE Brent crude for June delivery dropped immediately after the decision and ended down 35 cents at $23.91 per barrel, having earlier been as low as $23.85.

In New York, US light crude futures were down 75 cents at $25.90 per barrel, the lowest level since mid November, bringing this week's losses to 15 per cent.

The 10 active members of the group showed their reluctance to limit their market share by cutting only some of their excess production and raising their 24.5 million bpd quota to a temporary production allocation of 25.4 million, effective from June 1st.

Analysts said this was an attempt by members to jockey for position before the next challenge facing the group - reducing their overall market share to allow Iraq back into the quota system when it resumes oil exports, which were halted in March at the start of the war.

Mr Raad Alkadiri, analyst at PFC Energy, the Washington-based consulting firm, said: "Effectively, they are taking off the market one million barrels a day of oil, maybe a little more."

He added that OPEC's estimate that it was producing more than 27 million barrels at present was far too generous. "What they are saying is that Iraq is a non-issue; what they have done is made their job of reintegrating Iraq far more difficult."

The OPEC countries, most of which rely heavily on oil revenue, do not relish the idea of forgoing market share and some have begun to lobby heavily for increases in their share of the market.

OPEC said: "The conference reviewed estimated supply/ demand levels for the second quarter 2003, which indicate that oversupply is expected in view of the seasonal fall in demand during this quarter and the impact of the continued sluggishness of the world economy and SARS."

The group's president, Mr Abdullah bin Hamad Al-Attiyah, the Qatar oil minister, estimated that SARS had already reduced oil demand from Asia by 300,000 bpd.