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OPEC May Reduce Production

Some Members Also Favor Increasing Oil's Target Price

By George Jahn
Associated Press
Thursday, December 9, 2004; Page E02

CAIRO, Dec. 8 -- Saudi Arabia's oil minister said Wednesday that he was happy with OPEC's current output, while his Libyan counterpart called for a production cut.

The comments by Saudi Oil Minister Ali Naimi were no surprise; his country, the organization's top producer, had been believed to favor the status quo as a way of bringing some calm to months of oil market turmoil.

A hotel worker in Cairo makes preparations for OPEC's ministerial meeting that will take place Friday. Members may try to get oil prices back up. (Jamal Nasrallah -- AP)

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Libya, in contrast, appears to have scrapped its traditional alliance with the Saudis, who produce almost a third of the Organization of Petroleum Exporting Countries' total output. When Iraq's production of about 2 million barrels a day is included, that total amounts to around 30 million barrels a day.

With Qatar and Kuwait, Libya has joined Iran and Venezuela in urging compliance with OPEC's official quota of 27 million barrels a day as a way of stemming falling crude prices.

Naimi, in Cairo for Friday's OPEC ministerial meeting, said he was satisfied with current OPEC output and not concerned about the most recent sharp drop in prices.

"You guys forget -- one year ago it was in the 20s; now it's in the 40s. Even Saudi crude is in the 30s," he said, referring to the price of oil in dollars per barrel.

Naimi also said he wasn't concerned about the U.S. dollar's weakness against most major currencies, saying fluctuations were normal.

Meetings such as Friday's are meant to assess the market and decide on output policies. Some delegates have signaled that the group is considering reducing crude oil output because of the recent weakness in market prices.

Light, sweet crude for January delivery was up 48 cents, to $41.94 a barrel, Wednesday on the New York Mercantile Exchange but was still at levels that could build support for calls by some OPEC members to stem the downward spiral.

Fathi bin Shatwan, Libya's oil minister, said OPEC had two options at its Friday meeting: reduce production or lower the official output ceiling.

Asked which of the two options he backed, Shatwan said, "I prefer both."

By both pledging to refrain from quota busting and lowering the output ceiling, OPEC would send a strong message that it aims to underpin crude oil prices.

There are also some suggestions for raising OPEC's price band for crude. Purnomo Yusgiantoro, Indonesia's oil minister and OPEC's president, said this week that such a move would be justified because of "the inflation that occurred since 2001 and the depreciation of the dollar" against other major currencies.

The group's price band is now $22 to $28 a barrel. Officials from both Iran and Venezuela -- OPEC's second- and third-largest producers -- have said recently they would like to see the low end around $30 a barrel.

The United Arab Emirates' new energy minister, Mohammed bin Dhaen al-Hamili, expressed support on Tuesday for raising OPEC's price band for crude to a range of $30 to $38 a barrel to take into account inflation and the weakening of the dollar.

Petroleum prices have been high because of strong demand, a tight supply cushion and fears of output disruptions in Iraq, Nigeria and Russia. In September, a hurricane knocked out significant oil production in the Gulf of Mexico, though the region's output is now recovering.

Market prices remain nearly double the bottom end of the present price band. Still, the sharp fall in crude prices reflects rebuilt stocks, slowing economies, high production by both OPEC and non-OPEC countries, relatively mild weather in the Northern Hemisphere and a reduction of speculative futures buying that led oil to settle at $55.17 twice in October.

© 2004 The Washington Post Company