Fuel hike threat as OPEC cuts oil supplies

OPEC producers agreed a surprise cut in oil supplies yesterday that could raise fuel costs this winter and hamper economic growth.

Ministers decided to reduce output for 10 cartel members, excluding Iraq, by 900,000 barrels a day to new limits of 24.5 million bpd, said Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah. “OPEC will cut by 900,000 bpd from November 1,” al-Sabah told news agencies. The decision looks set to raise energy bills for oil-importing nations during the northern hemisphere winter.

“If oil prices continue to move higher, then interest rates in the G7 may need to be higher than they would otherwise be which is not good for recovery prospects,” said Paul Robson, economist at Bank One Corp in London.

“I think it is very bullish for oil prices,” said Gary Ross of New York consultancy PIRA Energy of the deal. “The hedge funds are short and they will be running for cover. It shows that OPEC cares more about revenue and price than anything else.”

The Organisation of the Petroleum Exporting Countries had seen world oil prices ease this month to four-month lows, despite a sluggish recovery in post-war Iraqi output.

Aiming to keep prices in a $22-$28 band for a basket of their crudes, several ministers entering Wednesday’s meeting had said they saw no reason for a change in output.

The recent price fall and projections that increasing volumes from rival non-OPEC suppliers like Russia were swamping demand growth appeared to change minds.

Delegates said ministers were worried about a counter-seasonal crude stockbuild during the fourth quarter and Iraq’s continued recovery towards pre-war supplies. Projections for 2004 from the International Energy Agency, adviser on energy to 26 industrialised nations, are for 1.4 million bpd of extra non-OPEC supply and only 1.1 million bpd of demand growth on the 79 million bpd world market.

Iraq, attending its first OPEC meeting since US occupation, reassured fellow members that Washington’s influence would not prevent it staying in the cartel.