OPEC agrees to hold oil output steady


Kuwait's acting oil minister Sheikh Ahmad Fahad al-Ahmad Al-Sabah at the OPEC meeting in Osaka

Staff and wires

OSAKA, Japan -- OPEC agreed Thursday to maintain oil production at existing levels for the fourth quarter to keep crude prices high, oil ministers said.

The 11-member Organisation of Petroleum Exporting Countries kept supply limits on hold despite worries among consumer nations about the impact of high energy costs on the world economy.

"Yes, we are going this way," OPEC Secretary-General Alvaro Silva said of the deal.

"Of course we are happy with the agreement," Algerian Oil Minister Chakib Khelil said. Ministers will ratify the agreement at a formal gathering later on Thursday afternoon.

CNN's Lian Pek in Osaka said a final, formal decision was expected about 6 p.m. local time, but there was no hint of dissent, even from OPEC's biggest producer, Saudi Arabia.

It is OPEC's first meeting in Japan, the world's second largest economy and a heavy user of imported energy. Oil accounts for more than half Japan's total energy supply, and about 86 percent of its $50 billion in annual oil imports comes from the Middle East. (Full story)

Real output higher

OPEC's stated output is 21.7 million barrels a day for 10 of its 11 members (Iraq's production is excluded). But the cartel's real output is thought to exceed this figure by as much as 2.15 million barrels a day.

OPEC President Rilwanu Lukman has admitted members have been pumping an extra 1.8-2.0 million barrels a day.

Delegates said Saudi Arabia had argued on Wednesday that ministers should consider a cosmetic increase in quotas to bring official limits more closely in line with real supplies. But it agreed to the consensus position on Thursday.

Saudi Arabia is concerned that non-OPEC suppliers such as Russia will expand their market share if OPEC continues to limit its output.

The OPEC cutbacks have been in place since January. Combined with the threat of a U.S. war against Iraq, they have pushed benchmark U.S. crude close to $30 a barrel.

Setback for recovery

That has been a setback for industrialized powers trying to sustain a shaky economic recovery.

"At the margin the world economy is fragile enough that higher prices could have a very real impact," said consultant Gary Ross of PIRA Energy.

Prices in Asia on Thursday for U.S. light crude futures rose four cents to $29.52 a barrel. That puts a basket of cartel crudes about a dollar short of the top end of the group's $22-$28 target range.

Analysts said many in OPEC were opposed to an increase because they are pumping at, or near, capacity. By contrast, Saudi Arabia has large volumes to spare.

"The countries that didn't want to increase quotas don't have spare capacity," said Ross of PIRA.

"Venezuela, Indonesia and Kuwait are at full capacity and Qatar and Iran have very little extra."

With fuel demand rising ahead of the northern hemisphere winter and the United States pressing for a possible military strike against Iraq, fuel bills may quickly come under further upward pressure.

Meeting in December

Producers will meet again on December 12 to review policy for the first quarter of 2003, by which time any U.S. plans for military action may be clearer.

"Oil market fundamentals will continue to strengthen over the next few weeks but prices will also be determined by the war risk premium and that will depend on how loud the war drums are beating," said Ross.

OPEC is more concerned about a price slide. If the threat of war were to recede, crude prices would probably fall. If that were the case then there was no guarantee of more crude when ministers meet again in December, said Lukman.

"We don't know, we have to see, the price in the market place is inflated by the threat of war in the Middle East and if this blows over prices will probably come further down," Lukman said.

Many market analysts think fourth quarter demand growth alone could prove sufficient to send prices back above $30 a barrel.

Production has not been high enough for the normal stockbuild seen during the third quarter. Inventories are particularly low in the United States, the world's biggest importer.

Data released this week showed U.S. stocks of crude draining sharply, even before the seasonal jump in demand during the northern hemisphere winter. Inventories are running about four percent or 12.5 million barrels lower than at this time last year.

Reuters contributed to this report.