Opec warns of output cuts if oil price falls

Click to follow
The Independent Online

The heads of state of the 11 Opec countries, at their first summit meeting for 25 years, yesterday repeated their call on the principal oil-consuming nations to reduce taxes on oil products and invited them to a meeting in November to discuss the future of the world market.

The heads of state of the 11 Opec countries, at their first summit meeting for 25 years, yesterday repeated their call on the principal oil-consuming nations to reduce taxes on oil products and invited them to a meeting in November to discuss the future of the world market.

The 20-point "Declaration of Caracas" commits Opec members to "actively seek a dialogue between oil producing and consuming nations, with the aim of achieving market stability". The ideal opportunity to put this into practice, Opec believes, would be the Seventh International Energy Forum, due to take place in Riyadh, Saudi Arabia, on 17-19 November.

It urges the industrialised nations "to reconsider their policies, so as to reduce the tax burden for the benefit of consumers". It points out that in many countries taxes constitute by far the largest part of the final price of oil products.

Before the declaration, a barrel of Brent crude for November delivery slipped as much as 71 cents to $29.82 - 12 per cent off its $34.34 high on 7 September but prices were little moved immediately after the declaration, slipping just a few cents.

The two-day summit, which ended yesterday, was held against a background of mounting concern in the West over the oil price, which has trebled over the last 21 months from a low of $10 a barrel at the end of 1998 to a peak of $34.

Opec's declaration steered clear of current market issues, while its president, Ali Rodriguez, warned yesterday that the organisation was prepared to cut production again if prices fell below $22 per barrel.

The cartel agreed last month to keep the price within a range of $22 to $28 by raising production by 800,000 barrels a day. Mr Rodriguez's comments were a sign that Opec would defend the floor of its price-band. Earlier, the oil price fell below the key $30 mark after Saudi Arabia said it was ready to increase output further to help calm the market.

Crown Prince Adbullah al Saudi told the summit: "The kingdom is willing and ready to offer the amount necessary to stabilise the world oil market."

"We are worried about the increase in oil prices that could have negative impact for world economic growth," the crown prince said. "We are trying to obtain a stable market and maintain the role played by oil in the world economy and maintain our share of the world market." Analysts said Opec would not be worried about the Saudi plan as it would rather see the kingdom benefit than watch the West release further reserves.

Lawrence Eagles, oil analyst at GNI research, said: "The comments from the prince have been comforting but have not been detailed enough to cause a huge sell-off. He has not explicitly said he will add more crude now but the comment on market share would seem to indicate that Saudi would rather add oil than see it being added by a [reserves] sale."

Comments