VIENNA/NEW YORK, 25 April 2003 — Oil prices slid to fresh five-month lows yesterday as the OPEC’s decision to raise production quotas fueled fears of a supply glut once Iraqi crude exports resume.
US crude futures fell more than a dollar to $25.61 a barrel, the lowest since mid-November, before recovering to $26.54 — 1 cent down on the day and 13 percent lower this week. London benchmark Brent rose 7 cents to $24.33 a barrel.
In a surprise move, OPEC raised official output limits, cutting back less than expected on the extra crude pumped to stop prices from spiking during the US-led war in Iraq.
Ministers agreed to lift total output by 900,000 barrels per day (bpd) to 25.4 million bpd effective June 1 for 10 member countries, excluding Iraq. They said supplies to the market actually would drop by 2.0 million bpd from their estimate of average production in February and March of 27.4 million bpd. The group is trying to prevent crude dropping below its $25 target.
The decision will be reviewed at the extraordinary meeting in Doha on June 11, an OPEC statement issued at the conclusion of a meeting by ministers of 10 member countries said in Vienna. “Today we feel we may need another cut in June,” Qatar Oil Minister and OPEC President Abdullah ibn Hamad Al-Attiyah commented afterward
“At first blush, the OPEC output cut looks bullish. But when you are cutting above quota, that’s not bullish at all,” said Jim Ritterbusch, president of Ritterbusch & Associates in Illinois.
Analysts said OPEC’s estimate of its recent production was much too high and that any reduction would be much less than 2.0 million bpd. “It’s all smoke and mirrors. They’re trying to create the impression that they are cutting back more than they are,” said Nauman Barakat of Fimat International Banque in London.
Oil has dropped about 30 percent in barely a month as Middle East oil flows escaped severe disruption from war in Iraq. Global economic weakness is also weighing on demand. A resumption of production in Iraq will likely add to the market glut.
Oil production is expected to resume in northern Iraq in the next two days. “We...anticipate in the next day or two to pump about 60,000 barrels per day in the north into the Baiji refinery,” Gen. Carl Strock, part of a US-led team overseeing reconstruction in Iraq, said in Baghdad.
