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Enlarged OPEC aims for 60-dollar oil
By Adam Plowright
AFP
ABUJA
Petroleumworld.com 12 15 06OPEC members meeting in Nigeria this week decided to restrict their output but expand their club, sending strong signals that the cartel is targeting high prices and a tighter grip on world oil resources.
At a gathering in Abuja on Thursday, ministers from the 11 member countries opted to cut their production by another 500,000 barrels per day from February and accepted African producer Angola as a new member from January 1.
The first decision sent oil prices immediately higher; the second portends further expansion, with the admission of another African producer, Sudan, possible in March.
Despite protestations from the Saudi Arabian Oil Minister Ali al-Nuaimi that the cartel was not targeting prices, analysts were united in their opinion that OPEC members had lined up to defend 60 dollars per barrel.
At this level, oil prices are about three times higher than in 2002, but OPEC appears confident that the world economy will continue to grow and inflationary pressures stay contained.
"They've drawn a line in the sand at 60 dollars," said an analyst at investment bank Investec, Bruce Evers.
The decision to cut output was driven by fears of oversupply, mainly because of forecasts of higher non-OPEC production next year, slowing economic growth and mild start to winter in the northern hemisphere.
Furthermore, the impetus for higher oil prices in recent times has come from low spare capacity -- the safety cushion in the world oil system -- and geopolitical tensions. The impact of both has lessened in recent times and inventories have built up.
Some ministers also expressed concern about the weakening dollar, which reduces their revenues from oil exports.
The inclusion of Angola is the first time the group has expanded since Gabon joined in 1975.
The move brings in a fourth African member -- Gabon has left but Algeria, Libya and Nigeria remain -- and binds a country with fast-growing production to the OPEC production system.
OPEC members regulate their oil exports and are assigned production limits under the quota system at the heart of the organisation.
Angola, a former Portuguese colony gripped by civil war for 27 years until 2002, currently produces 1.4 million barrels per day (bpd) and intends to increase this to 2.0 million bpd by the end of next year.
"Angola has vast resources which have only recently started to materialise," commented John Hall of energy consultancy John Hall Associates.
The admission of the country increases OPEC's total production to 32 million bpd, including Iraqi production which is excluded from the quota system.
The cartel, whose members have 75 percent of proven oil reserves worldwide, will have an increased share of the world oil market of about 40 percent.
An OPEC spokesman suggested Thursday that Sudan could join in March as a 13th member after approval from new president Omar al Bashir, while a membership bid by South American producer Ecuador must clear similar political obstacles.
"Both Angola and Sudan feel that OPEC membership will give additional political benefit and protection, while for Ecuador there has to be an additional motive," said John Hall.
"With the administration (in Ecuador) somewhat under the influence of President Chavez of Venezuela we can surely expect some more anti-US behaviour from yet another OPEC member."
Another leftist South American nation, Bolivia, has also expressed a desire to join OPEC despite its modest oil production of 40,000 barrels per day.
The short-term outlook in terms of OPEC's influence on oil prices is likely to depend on the discipline of the cartel and the actual reduction of supplies to the market.
The cartel decided in October to reduce its output by 1.2 million bpd from the beginning of November, but analysts believe the real reduction has been only 500,000-800,000 bpd because of cheating by some members.
The cut of 500,000 bpd in February would reduce the output from OPEC members, excluding Iraq and Angola, to 25.8 million bpd in principle.
Some analysts expressed concern that any reduction in supplies could send prices higher in the months ahead, the peak time for oil demand because of the northern hemisphere winter.
"We view OPEC's decision as putting further pressure on a market which looks already tightly stretched," said London-based analysts at Barclays Capital.
AFP 15 1257 GMT 12 06
Copyright© 2006 AFP. All Rights Reserved.
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