OPEC to Decide on 4% Cut in Output

As members of OPEC prepare to meet Wednesday in Vienna, the key question is whether the group will cut its production target by 4% as planned.

Despite announcing two production cuts in six months, the Organization of the Petroleum Exporting Countries has boosted its actual output to try to keep pace with the rising market.

OPEC agreed last month to reduce its output ceiling by 1 million barrels a day starting April 1 in an effort to keep prices from tumbling during a seasonal lull in demand this spring. But now members may ignore their self-imposed quotas to take advantage of high crude prices and meet the surging demand for oil in China and the U.S.

That could portend cheaper and more plentiful crude, but it probably wouldn’t be enough to comfort American motorists. U.S. gasoline prices have risen to a record national average of $1.75 a gallon mostly because of robust domestic demand, limited refining capacity and concerns about possible shortages in blending components for reformulated gasoline.

Some analysts say that any foreseeable increase in oil supplies probably wouldn’t translate into bigger gasoline inventories in time for the peak summer driving season.

Crude prices have risen by about $6 a barrel since OPEC announced its latest cut Feb. 10. U.S. prices have bumped uncomfortably close to the psychologically important threshold of $40, though they’ve backed off a bit on evidence of a build-up in crude inventories. Crude oil futures in New York rose 22 cents Friday to close at $35.73 a barrel.

“You’d have to be a complete idiot to cut production when prices are at these levels,” said Adam Sieminski of Deutsche Bank in London.

Excluding Iraq, which doesn’t participate in the group’s quota agreements, OPEC has pumped an estimated 26 million barrels a day so far in March. The logistics of reducing crude shipments now would make it impossible for the group to comply with its new ceiling of 23.5 million barrels even if it wanted to, said Leo Drollas of the Center for Global Energy Studies in London.