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OPEC Defers Production Cuts - 2001-11-14

The Organization of Petroleum Exporting Countries, meeting in Vienna, appears to have deferred a move aimed at raising oil prices by cutting back production among its members. The reason for the postponement is that OPEC is receiving little, if any, cooperation from countries that do not belong to the cartel.

The OPEC meeting was supposed to decide how big a production cut to make and when to implement it. But sources at OPEC headquarters say that, so far, there is no sign of consensus on either the size or the timing of the cut. And one OPEC official says privately that the cartel's members have not even agreed on whether there should be a cut at all.

A lot hinges on whether such big non-OPEC producers like Russia, Norway, and Mexico will do their part in an effort to raise oil prices. Russia, one of the world's top three oil producers, has offered to cut production by 30,000 barrels a day. But that is less than 0.5 percent of Russia's total production of 7 million barrels a day. And the sources say Russia has not offered any cutback in its exports, which amount to 3 million barrels a day.

OPEC sources say the Russians, who have boosted production over the past two years, could live with a price of around $16-17 a barrel. But they say that would be disastrous for OPEC members, who are seeking a range of between $22-25 dollars a barrel, but might settle for between $20-21. The sources say OPEC members have $160 billion of debt to service. So, they are reluctant to make sizable production cuts, only to see non-OPEC countries like Russia grab a bigger market share.

A Mexican diplomat in Vienna says his country and other non-OPEC oil producers want to gauge how serious the cartel is in cutting back what he says is overproduction among its members. The diplomat says OPEC members are producing 800,000 barrels a day above the quotas they set for themselves on September First. World oil prices have plunged 25 percent since the September 11 terrorist attacks in the United States. The benchmark Brent crude has dropped to just over $19 a barrel on the London oil market.

At issue now is whether the cartel will cut production by 1 million barrels a day or 1.5 million. One OPEC official says most cartel members would support a cut of 1.5 million barrels a day, if non-OPEC nations pledge to reduce production by 500,000 barrels a day. The official says it is likely that OPEC will not implement lower production levels until the beginning of next year, whatever degree of cooperation it eventually gets from non-members.