Region’s Opec members agree to keep oil production on hold

THE ORGANISATION of the Petroleum Exporting Countries (Opec) has agreed to keep oil output limits on hold, content with crude prices touching US$50 a barrel. Crude prices are up about 40% on last year, but members from the region do not believe the world economy is being held back.

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By  Rhys Jones Published  February 6, 2005

THE ORGANISATION of the Petroleum Exporting Countries (Opec) has agreed to keep oil output limits on hold, content with crude prices touching US$50 a barrel. Crude prices are up about 40% on last year, but members from the region do not believe the world economy is being held back. The agreement was reached last week after a short meeting in Vienna, despite worries among consumer nations about inflated fuel costs. However, gone are the concerns of last year about the impact of rising crude prices on the world economic growth that drives demand for its oil. With inflation in the big economic powers in check and low interest rates still generating above trend growth, Opec ministers see no reason for cheaper oil. Several of the 11-member group, including Saudi Arabia, have said they see no significant slowdown in world growth, pointing in particular to forecasts for Chinese oil demand to increase sharply again this year. “We think the high price will not effect the global economy,” said Sheikh Ahmad Al Fahd Al Sabah, president, Opec and Kuwaiti Energy Minister. “There won’t be a strong negative for the economy,” he added. Opec now appears prepared to defend oil prices at a floor of about US$40 a barrel for US crude, or US$35 for an index basket of cartel crudes — a US$10 increase on the official target it set in 2000. “We have to wait until the second quarter of this year to know exactly where the price indicator will head,” said Sheikh Ahmad. “But I believe that US$35 is a suitable price as an average price for the Opec basket of crudes,” he concluded. In spite of this, Iran’s Oil Minister Bijan Zanganeh has stated that the world is oversupplied. “They [Opec] say it is over one million [barrels per day]. Everyone [the industry] agrees there is oversupply.” Meanwhile, analysts say the weakening of the US dollar has protected non-dollar importers from the rise in dollar-denominated oil prices. “Oil prices are high, but the US economy hasn’t skipped a beat and the weaker dollar has insulated many growing economies from a shock,” said Yasser Elguindi at Medley Global Advisers.

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