Steep OPEC Cut Would Hurt All, Richardson Says

OPEC risks harming the global economy by instigating higher crude oil prices through a steep production cut, outgoing U.S. Energy Secretary Bill Richardson said Monday.

Many ministers of the 11-member Organization of Petroleum Exporting Countries, gathering in Vienna for a meeting beginning Wednesday, say output should be cut by at least 1.5 million barrels a day, or 5.6% of production.

“We want the market to be in a stable mode,” said Saudi Oil Minister Ali Ibrahim Naimi as he arrived in Vienna. “Therefore we need to make a reduction, and the size of the reduction will probably be around 1.5 million barrels per day.” Saudi Arabia is the world’s top oil producer.

But Richardson, after a tour of the Middle East, continued to counsel against any reduction deeper than that.

“If there is a steep production cut, we believe that prices will go up dramatically, and that is going to harm the world economy,” Richardson said at the end of four days of talks with officials in six OPEC countries. A price of $30 a barrel for crude oil “is inflationary” and should be closer to $25 a barrel, he said.

February crude closed at $30.05 a barrel on Friday, the last day of trading on the New York Mercantile Exchange before the holiday weekend. Nymex prices had fallen sharply in December, dropping to $25.77 a barrel on Dec. 20, before rallying recently on expectations of a cutback in OPEC production.

Richardson’s tour reflects U.S. concern over energy prices. The rising costs, and the threat they pose to household and business purchasing power, contributed to this month’s surprise interest rate cut by the Federal Reserve.

Richardson will leave office Saturday along with President Clinton. Sen. Spencer Abraham, a Michigan Republican who is President-elect George W. Bush’s choice for Energy secretary, faces a confirmation hearing on Thursday.

Richardson’s talks involved oil officials from Algeria, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, as well as Venezuela.

If OPEC does move to cut 1.5 million barrels a day, crude prices in the U.S. would average $27.20 in the first half of this year, a Bloomberg survey of analysts showed, close to the year-earlier average of $28.50.

The production cut would be OPEC’s first in almost two years. The cartel, which supplies more than 35% of the world’s daily oil needs of about 76 million barrels, threatens to lift prices even as the world economy is already slowing.

OPEC increased output four times last year, to a 21-year high, leading to the December price dip. Production quotas for 10 of the group’s 11 members rose by about 3.7 million barrels a day during 2000 to 26.7 million barrels a day.