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Oil Prices Slide on Possible Delay of Production Cutback

Crude has biggest drop in four months after Kuwaiti official says OPEC should hold off on reduction until June amid strong demand.

March 26, 2004|From Bloomberg News

Crude oil had its steepest price decline in four months after Kuwait said stronger-than-expected world demand might prompt OPEC to postpone until June a production cut scheduled for next month.

The Organization of the Petroleum Exporting Countries should delay the April reduction because of rising demand and possible setbacks to Iraqi supplies, Kuwait's deputy oil minister said. Ministers from Algeria, Qatar and the United Arab Emirates have also said the group may delay cuts. OPEC's moves come as rising imports have boosted U.S. supplies by 7% this year.

"As the OPEC meeting draws near, it's becoming clear that mounting discord is making it impossible for them to proceed with their planned cuts," said Jim Steel, director of commodity research at Refco Inc. in New York. "Imports are extraordinarily high and are likely to remain that way for the foreseeable future no matter what OPEC does."

Crude oil for May delivery fell $1.50, or 4.1%, to $35.51 a barrel on the New York Mercantile Exchange, the biggest single-day decline since Nov. 24. The contract is down 5.6% this week.

Prices on Thursday were up 27% from a year earlier, when U.S. and allied forces were moving through southern Iraq. Futures jumped to $38.18 a barrel March 17, the highest close since the 1990-91 Persian Gulf War.

In London, the May Brent crude oil futures contract fell $1.18, or 3.6%, to $31.83 a barrel on the International Petroleum Exchange. It was also the biggest single-session decline since Nov. 24.

OPEC might consider a delay in reductions at its March 31 meeting in Vienna, OPEC President Purnomo Yusgiantoro said.

Ali Ibrahim Naimi, the oil minister of Saudi Arabia, OPEC's biggest producer, has yet to comment on his country's position on the meeting.

"The Saudis often let the smaller members bring up sensitive topics so they can gauge the reaction, both in and outside OPEC, before making their position clear," Steel said.

OPEC agreed to reduce output by 1.5 million barrels a day as of March 1 and to cut quotas by an additional 1 million barrels April 1 at its Feb. 10 meeting in Algeria.

OPEC, excluding Iraq, pumped 26.02 million barrels a day in February, or 1.52 million more than the quota, according to a Bloomberg survey of oil companies, producers and analysts.

"Oil is plentiful," said Carl Larry, vice president of global energy sales for ABN Amro Inc. in New York. "OPEC is still producing more than they promised in September, so I think they will have to work on better compliance more than anything else."

U.S. inventories increased 7.5 million barrels to 288.6 million in the week ended March 19, the fourth straight weekly gain, the Energy Department said Wednesday. Crude oil imports averaged 10.1 million barrels a day, 4.7% higher than a year ago.

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