ARAB-OPEC AFFAIRS - March 17 - US Hits Output Cut.

OPEC's 2-day ministerial conference in Vienna ends with a decision to cut output by 1m b/d from April 1, excluding Iraq. The aim is to bring OPEC's basket price back to $25/b, having fallen below $23/b despite OPEC's 1.5m b/d output cut from Feb. 1, decided by the previous ministerial conference in Jan. The move is criticised by EU governments and the US. "We have a major energy crisis", Lawrence Lindsey, the chief economic adviser to Pres. Bush, said on NBC television on March 18. He said the administration was working towards policies that would reduce the US dependence on the oil cartel. "We need more refineries, we need more power plants, we need more natural gas pipelines". Senator Don Nickles, a Republican from Oklahoma, predicted that a comprehensive energy policy would be passed by the end of the year that would "help us reduce our dependency on OPEC".

OPEC Pres. Chakib Khelil of Algeria said output quota will fall to 24.2m b/d from 25.2m b/d, adding: "We are trying to prevent the situation that happened in 1986, in 1998 or even in 2000, when oil prices went through the roof and we acted four times to lower the oil price". Lindsey acknowledged a spike in US gasoline prices last year had been sparked not only by high oil prices but also by a shortage of refining capacity in the US. (The US is the world's largest consumer of oil, importing three-quarters of the 19.4m b/d it consumes. US Energy Secretary Spencer Abraham described OPEC's decision as "disappointing". Saudi Oil Minister Ali Naimi said: "I don't think this agreement will have any negative impact on the US economy. We want a fair, stable price of $25 a barrel, and everybody can live with that". He said an excess of oil could spark a "downward spiral and a collapse in prices, which would be detrimental to producing and consuming countries" and undermine investor confidence. (Although prices probably will remain around current levels or ease gently over the next month or two, they are likely to rise after May as refineries begin to process more oil than is usual at that time of year. But in May, when oil demand is increasing, it might slow down world economic recovery. OPEC says consumers, including those in Europe who staged protests amid soaring prices of crude oil and of gasoline last summer, should look closer to home for someone to blame for high prices at the pump). Khelil said: "Before they point the finger at OPEC, they should probably reduce taxes in their own countries". In Europe, he added, the cost of crude oil affects only 20% of what consumers pay for gasoline.