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OPEC may cut oil quotas

Economist says drop in production could damage world economic growth

February 20, 2001
Web posted at: 9:11 AM EST (1411 GMT)

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LONDON, England (CNN) -- OPEC's deliberations to cut oil output in March could depress fragile world economies, commentators said.

Ali Rodriguez, the oil cartel's secretary-general, said on Monday there was "almost a conviction" among its members to cut production ahead of a forecast drop in demand in the second quarter of the year.

"Any move could be counterproductive for OPEC," Julian Callow, an economist at Credit Suisse First Boston, told CNN. "They need strong economies to maintain demand."

OPEC's 11 members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- are heavily reliant on oil export revenues.

Callow predicts an OPEC cut could result in higher prices at the pumps, which could depress already weak consumer confidence. He said a $5 rise in the price of a barrel of oil would knock 0.25 percentage points from global economic growth and boost inflation by 0.4 percentage points.

The Organization of the Petroleum Exporting Countries wants to avoid a repeat of a 1998 crash in oil prices, when a barrel of crude hit a low of $9.95, as a financial crisis in Asia began to bite.

OPEC, which produces 40 percent of the world's oil, cut production by 5 percent, or 1.5 million barrels per day, in January in an effort to maintain the price of a basket of its crudes between $22 and $28.

Rodriguez said that "in the worst case scenario" OPEC may cut oil production by up to a million barrels per day in March.

"OPEC is trying to micromanage the oil price at the upper end of the range," Peter Gignoux, an oil industry analyst at Schroder Salomon Smith Barney, told CNN.

Gignoux said OPEC is "trailing balloons" in an effort to reach a consensus among its members.

Analysts said OPEC's decision to cut production in January was reached before the last meeting and was merely rubber-stamped at the January 17 meeting in Vienna, Austria. Analysts expect more debate between now and the March 16 meeting before the cartel comes up with a consensus.

IEA cuts its 2001 world oil demand forecast
February 12, 2001
OPEC cuts 1.5 million barrels a day
January 17, 2001

Organization of the Petroleum Exporting Countries

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