Opec Sticks To Plan But Promise To Cut Oil Output Isn’t Having Desired Effect

OPEC has agreed to proceed with plans to cut crude oil output as oil prices fell on perceptions that the group was not doing enough to rescue the market.

Some ministers had pushed for deeper cuts in output, but Iranian oil minister Bijan Namdar Zangeneh emerged from a session that began Monday and said OPEC’s cuts would come to around 1.25 million barrels a day, as previously planned.

Before OPEC wrapped up its emergency meeting, called in response to a price collapse two weeks ago that pushed oil to its lowest level in nine years, futures traders sold oil in New York and London.

Light sweet crude oil to be delivered in May fell 55 cents Monday to $16.21 on the New York Mercantile Exchange, giving back much of the roughly $2 per barrel oil had gained last week on news of the production cuts. The price of Brent crude to be delivered in May fell 63 cents to $14.77 per barrel on London’s International Petroleum Exchange.

“The market’s looking at the deal now with a bit more of a cautious eye,” said John Saucer, an analyst at Salomon Smith Barney Inc. in Houston. “I think you could use the word disappointing.”

Some ministers said OPEC needs to slash output even more severely if it wants to push prices higher, and analysts agree. The ministers now have pledges from OPEC and several non-OPEC producers to reduce output. They are hoping that will give them a reprieve from the damage caused by OPEC’s ill-timed decision in November to start pumping more crude.

OPEC’s efforts got a boost Monday when non-OPEC producer Norway, the world’s second-largest crude exporter after Saudi Arabia, said it would cut roughly 100,000 barrels a day of its production, or 3 percent of the total.

Norway’s oil minister, Marit Arnstad, said she may abandon the planned cuts if OPEC fails to deliver on its own promises.

Analysts say the glutted market needs about 2 million barrels less per day before prices can rise.

But experts also wonder whether OPEC can deliver even the cuts of 1.2 million to 1.5 million barrels, after seeing the formerly powerful oil cartel lose much of its influence over markets in recent years because of producers’ inability to stick to their production agreements.

OPEC ministers insist this time they will deliver.

“There’s still going to be a lot of oil around,” said Michael Rothman, an oil analyst from Merrill Lynch in New York who often attends OPEC meetings. “They’re in muddle-through mode. They’re trying to lessen the downside risk for prices.”

Rothman said that if OPEC doesn’t come up with additional cuts, the fact that it called an emergency meeting could backfire by having raised expectations of bigger reductions in supply.

Ministers were divided about whether to cut more now or wait and see how the market holds up with what has thus far been pledged.

OPEC’s secretary-general, Rilwanu Lukman of Nigeria, said after the meeting that OPEC will stick by its deal. But pressed about the group’s previous inability to stick to agreements, Lukman acknowledged: “No system is foolproof.”

OPEC did not adjust the individual production quotas of its members but said the cutbacks were “temporary until the end of 1998.”

The recent low prices have been a bonanza for oil consumers but devastating for OPEC and other producers. Since peaking last September, prices at the gas pump in the United States have plunged an average of 25 cents a gallon.

Members of the Organization of the Petroleum Exporting Countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

MEMO: This sidebar appeared with the story: ABOUT THE CUTS When Norway is included, the promised cuts from OPEC and non-OPEC producers come to about 1.5 million barrels a day. Analysts say the glutted market needs about 2 million barrels less per day before prices can rise.