OPEC Faces Uphill Battle For Oil Production Cuts

The Organization of Petroleum Exporting Countries is facing an uphill battle in Vienna, Austria Wednesday in its efforts to shore up floundering oil prices with another round of production cuts.

To& prevent a damaging supply glut, OPEC has already lowered output limits three times this year — but a slump in demand and steady supply growth from non-aligned producers has pushed world inventories into surplus.

As a result, oil prices have tumbled by 25 percent since Sept. 11 alone and are threatening to fall below the $20-a-barrel level — a far cry from the cartel's $25 price target.

Doubts over the impact of OPEC action kept a cap on oil prices on Tuesday with benchmark Brent crude trading up just six cents $20.45, off $7 since the September 11 attacks.

Non-OPEC Oil Producers Are Key

Several OPEC member countries have called for deep cuts in production in a bid to stabilize markets, but they know they also have to convince oil-producing nations outside OPEC to stop pumping at current levels or even boost output.

"I have said that we need something around two million and that OPEC will probably contribute a million and a half and that we are looking for around 500,000 from non-OPEC," Saudi Oil Minister Ali al-Naimi said in Norway on Tuesday.

Their efforts have met with little success. Strenuous efforts aimed at drumming up support from the big non-OPEC suppliers Russia, Mexico and Norway have come to nought.

Only Russia has agreed to curtail output along with OPEC, and even that has been a ridiculously small contribution. Russia has pledged to decrease its daily output of 7.1 million barrels of oil by a mere 30,000 barrels, or 0.4 percent.

Less reliant on oil revenues than their OPEC rivals and comfortable with crude prices still double the $10 lows of early 1999, non-OPEC producers do not share the cartel's urgency in seeing prices rise.

Iran Hints at Refusal

Recent declarations by OPEC's number two producer Iran looks unlikely to sway non-OPEC opinion but raises the possibility, albeit remote, that Tehran might refuse to sign a new deal if those countries do not comply.

Iranian Oil Minister Bijan Zanganeh on Tuesday said Iran was not prepared to cut "even one barrel" if non-OPEC producers did not participate with "serious" cuts.

"We need non-OPEC to contribute seriously with OPEC. I believe that every OPEC cut should be subject to real non-OPEC contribution," he said.

Saudi's Naimi and OPEC President Chakib Khelil, though, gave assurances OPEC would cut irrespective of non-OPEC action.

Gulf Arab producers like Saudi Arabia want at all costs to avoid a dangerous price collapse that would threaten further instability in the region at a time of political uncertainties after the attacks of September 11.

"OPEC is committed to price defence and that means keeping inventories under control," said analyst Raad Alkadiri of Petroleum Finance Corp.

"Politics got in the way of that strategy but its now two months since the attacks and OPEC feels that it is better to keep prices in the low end of its $22-$28 target band than in freefall."

Complicating matters even further is that Saudi Arabia would deeply upset the United States and its allies by risking a petroleum price spike while tensions are running so high over Riyadh's role in the current anti-terrorism campaign.

Reuters and the Associated Press contributed to this report.