OPEC Cutting Oil Production
OPEC agreed Wednesday to follow through on an earlier pledge to cut its oil production target by 4 percent starting in April, several oil ministers said.
The Organization of Petroleum Exporting Countries, which pumps about a third of the world's oil, will reduce its output ceiling by 1 million barrels per day. A recent surge in oil prices had led some of the group's 11 members to suggest postponing the cut, but OPEC's most influential oil minister, Saudi Arabia's Ali Naimi, prevailed in his effort to press ahead.
Kuwaiti Oil Minister Ahmad Fahad Al-Ahmad Al-Sabah, who had suggested delaying a cut, was among those who confirmed the group's decision. Ministers from Algeria, Nigeria, Libya and Qatar also confirmed the agreement reached in private talks ahead of a formal meeting at OPEC's headquarters in Vienna.
OPEC had agreed last month in Algiers, Algeria, to make the cut on April 1, but recent discomfort with rising prices in the United States and other importing countries had led some OPEC members to reconsider.
"We made decision to apply the Algiers decision. We're going to meet again in June … and at that time we're going to review the market," Algerian Oil Minister Chakib Khelil told reporters.
OPEC was forced to balance consumers' desire for lower oil prices with its own fears that swelling inventories and a seasonal lull in springtime demand could reduce cause prices to plunge.
The decision could have major political and economic implications for the United States, where gasoline prices reached another record high in a recent national survey — and have become an issue in the presidential campaign.
But The New York Times reports the impact could be softer than expected because most OPEC countries already exceed their pumping quotas and, lured by high prices for their crude, are unlikely to cut back now.
Excluding Iraq, which doesn't participate in the group's quota agreements, OPEC is already exceeding its target by an estimated 1.5 million barrels.
Along with tight supplies, U.S. and worldwide demand for gasoline are pushing prices higher, according to analyst Trilby Lundberg.
"The demand push this time of year is adding to supply tightness and therefore price," Lundberg said. "I don't see any recipe for substantial gasoline price cuts anytime soon."
Increased demand will likely result from an improving economy, Memorial Day travel, and even the extra hour of light from daylight savings time, Lundberg said.
Gasoline prices usually rise between March and May as refiners temporarily shut down their plants to prepare for the peak summer driving season, when special clean-burning blends of fuel are required. These shutdowns shrink supplies.
This year, the effect on price has been magnified because commercial gasoline inventories are already low. For the week that ended March 12, U.S. inventories stood at 199.6 million barrels, down from 202.1 million barrels a year ago.
Gas prices climbed another 3 cents in the two weeks ended Friday, said her Lundberg survey, which regularly surveys 8,000 stations nationwide.
The nationwide average in the past two weeks is $1.80 for all grades, surpassing the record set in the previous two-week period, Lundberg said.
Gasoline prices are up 29 cents per gallon nationwide since late December, Lundberg said. The national weighted average price of gasoline, including taxes, at self-serve pumps Friday was about $1.77 for regular, $1.87 for midgrade, and $1.96 for premium.
The rise in gas prices will tax drivers' wallets and increase costs for business.
In economic data released last week, the government reported that energy costs were leading a boost in inflation. The wholesale price level jumped by 0.6 percent in January, the biggest increase in three months. That reflected in part the largest jump in energy prices since last March at the start of the Iraq war.
There was a 4.7 percent rise in energy costs, the biggest monthly increase since a 4.8 percent rise in March 2002. Gasoline prices rose by 14.1 percent in January while home heating oil climbed 16.8 percent.
The campaigns of President Bush and Democratic rival John Kerry have turned gasoline prices into the latest battleground on the road to the White House.
Kerry is calling for the government to stop pumping oil into its emergency stockpile. Kerry said that's one of several steps Mr. Bush could take to slow the soaring cost of gasoline, although analysts are doubtful that such a move would have any significant impact on prices.
The Bush campaign countered that things would be even worse if Kerry had his way. In a new TV commercial, Kerry is accused of backing higher gas taxes 11 times.
Separately, Vice President Cheney said in a speech in Washington on Monday that Kerry once supported a 50-cent-per-gallon increase in gasoline taxes. Kerry now says he opposes such a tax increase.