Opec to answer million barrel question

OIL cartel Opec faces its most politically charged meeting for years today as ministers decide whether to press ahead with a million-barrel-a-day cut in output and risk a further rise in global crude prices.

Brent crude has averaged $30.92 a barrel since the turn of the year on soaring demand from China, supply disruptions in Iraq and tight inventories in gasoline-guzzling America.

Opec stunned the market last month by signalling that it would slash output by a million barrels from 1 April in a bid to underpin prices in the second quarter, when demand traditionally dips.

Speculation of a cut has led to intense lobbying from US officials worried about a sensitive rise in energy prices in an election year. Russia yesterday warned that a reduction would hit economic growth.

'The market could go up by $2 a barrel if Opec cuts,' Rob Laughlin, analyst at GNI Man Financial, said. 'But the growing feeling here is that they are going to do nothing.'

Analysts believe that - despite bullish noises from Opec members, who blame hedge funds for part of the crude price rise - the cartel is most likely to keep production at 24.5 million barrels a day at its meeting in Vienna today and instead rein in members who have bust quotas for months.

Industry insiders estimate Opec has 'leaked' 1.4 million barrels a day over its 24.5 million limit since February as members safeguard market share. Despite this, Opec's basket oil price has averaged more than $30 a barrel, above its range of $22 to $28.

Orin Middleton, a trader at Barclays Capital, said: 'Clearly Opec has to take oil off the market going into the second quarter. The question is are they are going to do it with a one-million official cut or are they going to clear up overproduction as they promised to in February? They have to get the oversupply in order first before they can start cutting, otherwise they may end up losing credibility.'

Ali al-Naimi, Saudi Arabia's influential oil minister, revealed yesterday that the oil-rich kingdom was already implementing its own cuts.

'Throwing more oil on the market, because of prices where they are today, would be destructive. That would make a glut and there is already a surplus on the market,' he said.