EU AND US PRAISES OPEC BUT WARNS PRODUCERS AGAINST BIG OIL CUT

By Safa Haeri
PARIS 13 Jan. (IPS)    As oil prices continued to increase on world oil markets, European Union Commissioner for Energy and the US Energy Secretary cautioned producing nations against sharp cuts in production, warning that such a measure could have a "negative impact" for both producers and consumers.

Speaking during an impromptu press conference organised Friday at the EU's Paris headquarters, Ms. Loyola de Palacio of Spain and Mr. Bill Richardson both expressed satisfaction at the present situation of oil markets and lauded "constructive efforts" by the Organisation of Petroleum Exporting Countries (OPEC) aimed at stabilising that market, but at the same time warned that "precipitous action to severely decrease world production would hurt both producers and consumers".

Last year, OPEC increased its total output by almost 4 millions barrels per day (bpd) to fight an unprecedented increase in oil prices that reached up to 35 US $.

The price of OPEC's basket of seven crudes increased by 54 cents and was US$ 24.23 a barrel Thursday, compared to US$ 23.69 Wednesday, according to OPEC Secretariat calculations. For 1999 as a whole, the price of the Basket averaged Dlrs 17.47 a barrel, compared with Dlrs 12.28 the previous year.

"Because the market is still volatile, producing nations should be extremely careful about cutting production and should consult with the countries that will feel the greatest impact", Ms. de Palacio observed at the end of an extensive meeting with the US Energy Secretary Bill Richardson.

Earlier, the two had met with senior officials from the Paris-based International Energy Agency, including Mr. Robert Pridle, the IEA Executive Director and his Deputy, Mr. William Ramsay, reviewing the oil market situation.

"It is true that with spring approaching, there will be a surplus and it is natural that in their next meeting, OPEC minister consider reduction of their production, but right now, all consuming nations, particularly the US and Europeans are building their stocks, but any unconsidered reduction would harm the world economy", she said.

However, Commissioner de Palacio said "precipitious actions to severely decrease world production levels at a time when inventories are building will increase volatility and raise prices, hurting both producer and consumer countries and developing world".

OPEC ministers are to meet on 17 January in Vienna and sources close to the organisation said considering the present prices, they are expected to lower the total production.

Journalists were surprised at Mr. Richardson's praising OPEC, as they remembered him traveling from Venezuela to Saudi Arabia and the the Persian Gulf, hammering OPEC doors for oil increase. "OPEC's present strategy largely contributes to market stabilisation and regulation", he told newsmen.

"The Commissioner and the Secretary agreed that the global oil market has begun to stabilise and that would-wide crude oil and product stocks are starting to build, in large part because oil producing nations increased oil production four times last year for a total of more than 4 million bpd", a joint statement noted.

"The Commissioner and the Secretary praised the efforts of producing, consuming and developing countries to co-operate to reduce volatility in the market. They committed to continue their joint efforts to further stabilise the market", the statement added.

As both Ms. de Palacio and Mr. Richardson emphsised on the importance of maintaining "constructive dialogue" between producers and consumers, former Saudi Oil Minister Sheikh Zaki Yamani also warned OPEC against going ahead next week with its expected 1.5 million barrels per day cut back in production, aimed to shore up prices following their decline from US$ 35 dollars per barrel to 25 in the past two months. 

"If I were at the OPEC meeting I would say "don't take action until we see what is the Iraqi situation, then take action accordingly", he said.                                               

Addressing the prestigious Royal Institute of International Affairs at Chattham House in London, Mr. observed that the cut would be too much and push prices back up towards US$ 36 per barrel "unless Iraq starts again to export oil".

Elsewhere, he warned that the long-term future for oil is not good for producing countries due to the advance of new technologies. "Gas would also become a real competitor to oil due to the development of gas-to-liquids that will cut the current high transportation costs", he said.                                                

"Time will come in the foreseeable future where there will be an abundance of oil, while world consumption will be less. The petroleum era will come to an end, but not because of shortage" Mr. Yamani said, adding that the "disturbing factor" for oil producing countries was not the running out of supplies, but because of the effects of technology on the demand for oil product", Mr. Yamani, who is the Chairman of the London-based Centre for Global Energy Studies, observed. EU US OPEC 13101