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  • Feb 2nd, 2008
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Opec on Friday kept oil supplies unchanged and price hawks in the cartel said it may need to curb output in March to defend prices against a drop in demand should the United States topple into recessiom. The Organisation of the Petroleum Exporting Countries rejected an appeal from Washington for more oil to lower fuel bills and bolster its slowing economy.

Worries about the economy hit prices and US crude by 1805 GMT had lost $3.11 to trade at $88.64 a barrel. "No surprise with this decision," said analyst Simon Wardell at Global Insight. "I think the instinct is to cut, but with a meeting next month they were always likely to wait until then to make the cut they believe is needed. They want to balance consumer concerns over the global economy with their own desire to support prices and ensure government revenues continue to accumulate."

The first signs of a split in the 13-member organisation over how best to handle supply policy heading into a recession saw Iran and Venezuela raise the prospect of output cuts when Opec next meets on March 5. "Maybe, maybe. We have to be very careful and keep a close watch on inventories," said Venezuelan Oil Minister Rafael Ramirez.

Tehran and Caracas will be reluctant to offer any economic help to their political foe the United States and are keen to defend the rise in crude prices that underwrites their respective regional political ambitions.

Delegates say Opec's Gulf producers led by Saudi Arabia and Kuwait, both with close ties to Washington, may prefer to nurse the West through an economic slowdown that is likely to eat into demand for Opec oil. "The responsible members aren't talking about cutting yet," said a senior Opec delegate.

"We don't want to be pumping more barrels into an economy that tanks but equally we don't want to be cutting and precipitating a recession either," said another Opec delegate. Many in Opec take the view that oil plays no part in a downturn led by the US housing market crisis and the resulting credit crunch.

"This crisis has nothing to do with the oil price, oil supply and demand," Opec President Chakib Khelil said ahead of Friday's meeting. Washington disagrees.

"That's not in the interests of oil producing countries," said White House spokesman Tony Fratto. "We hope that they understand that their decisions on oil production have a real impact on the economy, and the use of this commodity," Fratto said.

"With the current pressures from the financial system, the economy does not need additional downward pressure on consumer spending and growth from near record oil prices," said the International Energy Agency, adviser on energy to industrialised nations.

Powerful Saudi Oil Minister Ali al-Naimi said he would have pushed for an output increase at Friday's meeting if it were needed but global supply and demand were in balance. "The condition of the market is sound currently, supply and demand are equal and global reserves are fine," Naimi said, al-Hayat newspaper reported.

Naimi said Riyadh now was pumping at 9.2 million barrels daily, well in excess of its Opec allocation of 8.94 million bpd. Traders say that would suggest he is making a discreet effort to ease prices - normally at this time of year Saudi would be reducing output ahead of a seasonal second quarter drop in demand.

Copyright Reuters, 2008

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