Good news re Oil Prices

[Guest M. McRae]

OPEC Lifts Limits, Surprise Hits Prices

Thu April 24, 2003 01:53 PM ET

By Jonathan Leff and Tanya Pang

VIENNA, Austria (Reuters) - OPEC pulled the rug from beneath world oil markets Thursday with a surprise decision to raise output limits that effectively legitimizes a large portion of extra pre-war supplies.

Ministers agreed to lift official output limits by 900,000 barrels a day to 25.4 million bpd, effective from June 1, for 10 member countries, excluding Iraq.

That compares with their estimate for the 10 on average during February and March of 25.5 million barrels a day, a difference of only 100,000 bpd from their new limit.

Iraq pumped 1.9 million bpd during that period, they said.

Ministers tried to present the decision as a reduction of two million bpd from total average production, including Iraq, for the period of 27.4 million barrels a day.

But with Iraq forced out since the U.S. invasion of March 20, Nigeria's OPEC delegation head Rilwanu Lukman admitted that production from the remaining 10 in OPEC would not change much.

Dealers were not impressed.

"This is all smoke and mirrors," said broker Nauman Barakat of Fimat International Banque in London. "Saudi Arabia appears to be grabbing a higher quota before the return of Iraq."

U.S. light crude futures fell $1.11 a barrel to a five-month low of $25.77 a barrel.

"This is a highly confusing decision and it sends a very confusing message to the market," said Raad Alkadiri of Washington's Petroleum Finance Corp.

"It looks like they have precluded any return of Iraq oil before June, and are effectively sharing Iraq's market share between them."

The Organization of the Petroleum Exporting Countries had sanctioned extra deliveries to prevent the U.S. war on Iraq causing an oil shock.

The decision means good news for oil consuming nations who have seen high prices block economic growth. U.S. crude is running at $32.66 a barrel to date and North Sea Brent at $29.52.

The Organization for Economic Cooperation and Development said on Thursday that costly fuel was a factor stalling world economic recovery.