OPEC Rules Out Action as Oil Price Caves

VIENNA – OPEC producers on Wednesday agreed to keep oil output limits unchanged, ruling out bigger curbs that might have risked deepening the world's economic downturn by raising the cost of energy supplies.

Powerless to prevent this week's heavy slump in crude prices, the Organization of the Petroleum Exporting Countries is reeling from the economic aftershock of the September 11 attacks in the United States.

Delegates said that at a short meeting ministers agreed they had no option but to keep output for 10 member countries steady at 23.2 million barrels a day.

``Let's not take drastic action. OPEC should not rush into decisions,'' said Saudi Oil Minister Ali al-Naimi before the talks got underway. ``We must hold steady and watch this for a while.''

``I think the current situation is not because of the fundamentals in the market -- I believe there is no reason to panic,'' said Iranian Oil Minister Bijan Zanganeh.

Delegates said ministers would ratify their pact and release a statement on Thursday morning. They met late on Wednesday with officials from non-OPEC nations.

Another gathering of the cartel is likely to be called for early November.

Hopes are that by then the political constraints tying OPEC's hands in the wake of the assaults will have been lifted, allowing it to revive its successful two-year strategy of keeping prices in a high-price band of $22-$28 a barrel.

But demand is waning for OPEC's oil as industry, business and consumers cut back on consumption of petroleum products like jet fuel, gasoline and diesel.

LOST CONFIDENCE

And oil traders appear to have lost confidence in the cartel's ability to prop up prices by managing supply.

London benchmark Brent in late trade on Wednesday added 12 cents a barrel to $22.50. Losses in the two weeks since the attacks in the U.S. are $6.50 a barrel, or 23 percent.

That values OPEC's basket of mostly heavy crudes at about $19 a barrel, its lowest in nearly two years.

``OPEC has done the only thing possible. And I applaud them for not doing anything rash,'' said Bob Finch, head of trading at Vitol in London.

``It's a no win situation for OPEC,'' said consultant Yasser Elguindi of Medley Global Advisors. ``If they cut they stand to lose a lot politically while gaining very little.''

While OPEC insists that it is retaining its central $25 price target, ministers admitted their best bet for now was to allow time for existing output curbs to be felt in the market.

``The September cut still needs time to work,'' said Saudi's Naimi. ``There are still barrels out there. Let's let the cut work first, then we can take further measures as needed.''

OPEC already has reined in output three times this year, the latest reduction of a million barrels a day coming into effect at the beginning of this month.

LOSING MARKET SHARE

That gives it little, if any, room to maneuver in slicing output further without ceding market share to other suppliers.

Ministers are worried that without a rebound in world demand, any further curbs could erode OPEC market share versus rising competitor non-OPEC country producers, without helping prices.

In times of oil price trouble OPEC often looks to place the blame on other suppliers, who routinely pump at full capacity.

``Non-OPEC producers have increased their exports without paying attention to the current situation,'' said Iran's Zanganeh. ``The benefits of OPEC's decisions to limit crude exports are being reaped by non-OPEC producers.''

Leo Drollas of London's Centre for Global Energy Studies said he saw demand growth among industrialized nations during the fourth quarter at zero versus the third quarter.

``That's pretty bad. Normally fourth quarter growth is about one million barrels a day,'' he said.

Holding back more than four million barrels a day of spare capacity in the 76 million bpd world market, cartel members are finding it difficult to resist the temptation to leak extra volumes.

Independent estimates are that it is pumping as much as 1.5 million bpd over official quotas of 23.2 million.

Dealers said that the market would not take seriously any suggestions of another round of reductions before compliance with existing limits improved.