OPEC Keeps Cap On Output

OPEC agreed on Friday to keep a cap on oil output until the end of June, leaving consumer nations to fret that crude prices might race out of control before the cartel eases open the taps.

The Organization of Petroleum Exporting Countries oil ministers said they were still unconvinced that a nascent economic recovery was strong enough to justify their pumping more oil before summer.

Although demand for oil tends to rise during the second half of the year, Libyan Oil Minister Abdulhafid Mahmoud Zlitni said it was too early to predict whether the world's economy will be robust enough to warrant an increase in crude supplies by then.

"All the facts and figures indicate that the market is now getting stabilized. There are signs of good improvement in growth rates throughout the world, but they're not sustainable yet," he said, echoing the cautious outlook of the majority of his OPEC colleagues.

Planning to meet again in the summer, OPEC is already starting to wrestle over policy for the second half of the year.

Ministers are seeking to cement the price of their reference basket of crudes in a $22-$28 a barrel range and wait for an economic revival to lift demand for their oil.

"The price has only just entered the lower end of our band and we hope it moves higher as the economy recovers," said Venezuelan Oil Minister Alvaro Silva.

Price hawks, thrilled by recent price gains after a fourth quarter slump, see no reason to raise output until OPEC crude hits $28, equivalent to at least $30 for benchmark U.S. light crude.

That is $5 above the $18-$25 comfort zone signaled last week to OPEC power Saudi Arabia by U.S. Treasury Secretary Paul O'Neill.

"My hunch is that we will not see enough economic growth such that we will need to increase production in June," said Algeria's Oil Minister Chakib Khelil.

"We have a range of $22-$28, so why should we raise if it is not above $28?" added OPEC President Rilwanu Lukman.

But OPEC's biggest producers look ready to ensure prices do not spiral out of control and stall an economic rebound.

"If necessary we will raise output," said Ali al-Naimi, oil minister for OPEC's largest producer Saudi Arabia.

He declined direct comment on what price level would trigger an output increase, but asked whether production could be raised at prices lower than $28, he said: "If the decision is driven by fundamentals we will do it."

"We don't want to have a shortage in the market," said Iranian Oil Minister Bijan Zanganeh.

"OPEC has to strike a delicate balance between providing a growing world economy with sufficient oil without force feeding it and risking weaker prices," said Gary Ross of New York consulting company PIRA Energy.

"But history shows that it tends to fall behind the curve, undersupplying the market during periods of rising economic activity and growing demand. And that forces prices up."

Ministers and energy analysts alike have said that much of the recent rise in prices is due to psychological factors. World oil markets have been particularly jumpy about possible U.S. military action against Iraq and the effects such a conflict might have on other oil exporters in the Persian Gulf region.

U.S. light crude on Friday ended down 11 cents at $24.45 a barrel.

Worries among consumer nations in the West are that if prices go too high they could stunt a fragile economic revival.

"The oil price decline after Sept. 11 was a great stimulus to the consumer. If we get into summer and get high gasoline prices it will take all that money back out of U.S. consumers' pockets," said Sarah Emerson of Boston's Energy Security Analysis.

"If they don't want a repeat of 2000 when prices ran out of control they will have to increase in the third quarter by at least another million barrels a day," said Roger Diwan of Washington consultancy Petroleum Finance Corp.

OPEC restrictions limit 10 member nations to 21.7 million barrels daily, leaving more than five million barrels a day of idle capacity on the 75 million bpd world market.

That leaves plenty of cover for any loss of output from OPEC member Iraq if Washington widens its war on terror to take military action against Baghdad.

Iraq's Deputy Oil Minister Taha Hamad Musa, heading Iraq's OPEC delegation, said Baghdad would not stop oil exports in the event of an attack by the United States.

"Of course we will defend ourselves but we will not stop or cut our exports. We would sustain exports," Musa said.

Iraq pumps some 2.5 million barrels daily in an exchange for humanitarian goods monitored by the United Nations, still enforcing sanctions imposed after Baghdad's 1990 invasion of Kuwait.

OPEC has persuaded independent producers that joined its supply management campaign last December to stay on board for another three months. Ministers are confident Russia will match Mexico, Norway and Oman in agreeing to keep a lid on output.