Prices edge up on cuts expectation

21 December 2001

Prices firmed in the third week of December in response to signals from OPEC that a substantial production cut will go into effect at the start of 2002. OPEC ministers were scheduled to meet in Cairo on 28 December to take a final decision on the cut. The organisation had previously pledged to reduce output by 1.5 million barrels a day (b/d), on condition that other producers cut their output by an aggregate 500,000 b/d.

OPEC said on 18 December that the Cairo meeting would be held 'in light of the welcome, positive decision announced by Norway.to cut its output by 150,000 b/d from 1 January-30 June 2002, as well as other similarly positive statements of support issued earlier by a number of major oil producers'.

The key player in determining the success of the OPEC move to keep prices up is Russia, which has indicated that it is prepared to cut 150,000 b/d. Yukos, one of the most aggressive of the Russian oil companies, has raised questions over the extent of Russia's commitment to the deal, however. Yukos has said that it would use its peak export level as the base from which to cut, that it would stockpile oil while the restrictions lasted and that it would increase exports of refined products.

Analysts say the market has factored in the OPEC cuts, so the recovery in oil prices is likely to be modest at best.

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