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Opec Decision Sets Stage For Lower Oil Prices Cartel Boosts Production Ceiling To Make Room For Renewed Sales By Iraq

Associated Press

After wrestling with ways to keep production steady when Iraq resumes pumping oil, OPEC decided in the end to brush the issue aside.

The cartel said Friday it would raise the cartel’s daily production ceiling to 25.033 million barrels while eliminating the oil produced by tiny Gabon as it drops out of the group.

Traders had a lackluster response, with oil futures fluctuating by just a few pennies a barrel in London and New York after the OPEC meeting ended. Later in the day in New York, crude gained modestly in thin trading.

But experts suggest the price outlook is bleak when Iraq actually comes online and starts selling an estimated 800,000 barrels of crude a day.

“They haven’t done anything,” said Leo Drollas, chief economist of the Center for Global Energy Studies in London. “In fact, they’ve probably made it worse. They’ve confirmed overproduction won’t be dealt with.”

Iraq’s return to the oil market has hung over OPEC ever since the Persian Gulf War, when Iraq invaded neighboring Kuwait and the United Nations responded by banning oil exports by the nation with the world’s second-largest reserves after Saudi Arabia.

The cartel’s fears are now becoming reality, after Iraq and the United Nations last month came to terms on a deal for Iraq to sell $1 billion of oil every 90 days to buy food and medicine for the Iraqi people, who have suffered severely since their defeat in the Gulf War.

Iraqi oil minister Amer Mohammed Rasheed came to Vienna talking big, saying at one point Iraq could be back at its pre-war production levels of about 3.5 million barrels a day within a year. U.N. diplomats scoffed at what they called ridiculous posturing.

But Rasheed appeared jubilant at the end of OPEC’s meeting.

“We will produce whatever we can and they will accommodate it,” Rasheed told reporters.

The Organization of the Petroleum Exporting Countries publicly adopted a brave face, though privately some members say they are worried about what will happen to prices in coming months. For some time, OPEC has had an official production ceiling of 24.52 million barrels a day.

To achieve the new ceiling, OPEC boosted Iraq’s allocation to 1.2 million barrels a day, adding the 800,000 barrels Iraq expects to export on top of its previous quota of 400,000 barrels a day, used for domestic consumption.

But OPEC arrived at its ceiling of 25.033 million barrels by starting from a lower base as it gave up on efforts to keep tiny Gabon in the group. Ministers subtracted Gabon’s 287,000 barrels a day before adding the new barrels for Iraq.

Gabon ditched OPEC in a dispute over membership dues, but its oil will still be sold, of course.

So OPEC has not really made any new room for Iraq unless it can convince other members to stop cheating on their individual production quotas.