OPEC ministers managed to surprise almost everyone with their decision on 24 April. Prior to the meeting, analysts expected producers either to formally cut quotas or simply pledge adherence to existing limits. In the event, OPEC increased its output ceiling on a pro-rata basis by 900,000 barrels a day (b/d) to 25.4 million b/d (see table).

Explaining the theory behind the move, Al-Attiya said that average February/March production including Iraq was 27.4 million b/d, and thus 2 million b/d of oversupply was being removed from the market. Confusion centred on whether and to what extent the OPEC 10 had actually agreed to cut their own production. Iraq produced an average of about 2 million b/d in February and March, with loadings continuing until the week before the outbreak of war on 20 March.

Based on Al-Attiya's explanation, output from the OPEC 10 members is not being cut at all. However, the combination of the Iraqi outage and unrest in Nigeria, partially offset by output increases from other member states, led most analysts to estimate OPEC 10 production going into April at around 26 million b/d, so that the new quota removes about 600,000 b/d from the market. Furthermore, since May loading schedules are already in place, the output cut will not take effect until June, when Iraqi output of at least 600,000 b/d may well return. 'It looks like they may have precluded any return of Iraq oil before June, and are effectively dividing up Iraq's market share between themselves,' says a Washington-based analyst.

The sliding prices are also the result of subdued demand - the traditionally weak second quarter being compounded by the SARS virus, taking off an estimated 300,000 b/d - and sluggish economic activity.

However, various factors are pulling in the opposite direction. Doubts persist over the legality of restored Iraqi exports. Crude stocks remain unusually low despite record US imports of 10.6 million b/d in mid-April, and refineries' gasoline stocks are also lower than normal for the time of year. US crude inventories rose 0.6 per cent in the week ending 25 April to 288 million barrels, 11.7 per cent lower than a year earlier.

Fears about the reliability of Nigerian production grew in late April on news that some 100 foreign oil workers were being held hostage on rigs in the volatile Niger Delta. 'We would not expect these [price] lows to be sustainable,' says Paul Horsnell of JP Morgan. 'But in the short term, prices will come under considerable pressure.'