The Organization of Petroleum Exporting Countries will cut output as promised next month to prevent a drop in prices because of a seasonal slowdown in demand, the ministers for Saudi Arabia and Algeria said. ``More oil now will make a glut in the market and force prices to collapse, something we don't want,'' Saudi oil minister Ali al-Naimi told reporters in Vienna. ``Throwing more oil on the market would be destructive for everybody.'' Oil prices rallied after the remarks from the group's biggest producer, with Brent crude up 25 cents at $31.99 a barrel as of 11:23 a.m. in London and New York oil gaining 30 cents to $35.75 a barrel. Prices in London are up 18 percent in the past year, and oil in New York set a 13-year high earlier this month.
OPEC meets tomorrow, with ministers deliberating last month's accord to reduce output quotas by 1 million barrels as of April, to 23.5 million a day, as demand slows with warmer weather from Chicago to Tokyo. The yearlong rally in oil prices has led to record U.S. gasoline prices, boosted costs for businesses such as British Airways Plc and raised criticism from U.S. officials including Treasury Secretary John Snow. Kuwait's minister, Sheikh Ahmad Fahd al-Ahmad al-Sabah, said OPEC should postpone the oil cuts because of rising prices, the official Kuwait News Agency reported. The ministers for Qatar and Indonesia have also said the plan may be delayed. The Saudi and Algerian ministers said oil prices are rising because of speculation in the market and not because of a shortage of oil. Algeria's oil minister, Chakib Khelil, backed a cut in the quotas and said his nation will reduce supply by 10 percent next month to meet its target.
OPEC `Credibility'
``We need first to apply what we agreed,'' Khelil said in an interview in Vienna. ``If not, we will lose credibility in the market. OPEC has been credible in the past, in 2000 and 2001, because we did what we said we were going to do.'' Oil analysts including Jay Saunders at Deutsche Bank Securities Inc. in New York argue that OPEC may proceed with quota cuts, then ignore the accord. OPEC, source of a third of the world's oil, last met its production quotas in January 2001. ``They will probably say that they will adhere to the April 1 cuts and continue with this charade,'' Saunders said. ``The meeting is designed to show that they are still in control of the market.'' OPEC can't lower prices now, al-Naimi said, because most available capacity pumps high-sulphur grades, while markets need better-quality oils that can more easily be processed for gasoline. New York crude sells for $3.76 a barrel more than Brent in London, which is a lower grade of oil. The average premium in New York is $1.70 a barrel in the past five years. ``The price today has nothing to do with supply and demand,'' al-Naimi, 68, told reporters during a morning walk through the Vienna streets. He reiterated support for crude oil prices of $25 a barrel. OPEC has targeted prices of $22 to $28 a barrel for its benchmark, which stood at $31.57 as of Friday.
Iraq, Speculators
The rally over the past year came partly as Iraqi production, plagued by sabotage in the months following the U.S.-led invasion last March, lagged expectations. Higher prices also followed stronger-than-expected world demand, led by economic growth in China. Hedge-fund managers and other large speculators, whose decisions can influence prices, increased their bets in New York crude-oil futures last week to the highest in at least nine years. Long positions are bets prices will rise. Speculative long positions, or futures bought, outnumbered shorts by 136,602 contracts in the week ended March 23, up 9 percent from a week earlier, the U.S. Commodity Futures Trading Commission said in its weekly Commitments of Traders report on Friday. ///www.bloomberg.com