FOCUS-Oil pact stumbles but OPEC plays long game
By Karen Matusic
VIENNA, March 31 (Reuters) - An OPEC decision to trim oil output for the first time in years stumbled on Tuesday when prices sank despite unprecedented gifts of cuts from other exporters.
But the producer club that pumps 40 percent of global output put a brave face on the no confidence vote by predicting a rally when evidence gradually emerges of supply restraint.
Cartel oil barons said they were playing a long game.
"The market should judge the OPEC decision in two months," said Saudi Arabian Oil Minister Ali al-Naimi.
He said the Organisation of the Petroleum Exporting Countries could take further action to support the market if necessary in what he called its new spirit of pragmatism.
Sceptical traders agree it will take time to detect the tell-tale changes in crude flows that will provide the vital evidence needed to underpin a sustained price rescue.
But they were already selling the market when an emergency OPEC meeting approved a 1.245 million barrels per day (bpd) cartel contribution to a two percent cut in global output.
The rest of the sacrifice will come from non-OPEC Norway, Mexico, Egypt, Oman and Yemen, which pledged cuts of 270,000 bpd for a total of 1.5 million bpd in overall reductions.
"The fall is hopefully a short-term blip. I think the market is overplaying the pessimism," said a top executive at a Gulf Arab oil company, noting OPEC was making its first reduction in output since the mid-1980s.
"Remember, this is a unique agreement with non-OPEC producers. We were able to get an accord with Mexico and Norway when everyone said we couldn't," said the executive.
"Those that went short will be lucky in a few days to run away with their clothes on," a Saudi official said of traders who have pushed the price down a dollar so far this week.
But traders are signalling they want deeper reductions amid concerns that glutted markets could remain awash with crude.
Those worries helped lower benchmark Brent 53 cents to $14.24 a barrel in London.
Tuesday's price rout depressed shares in British Petroleum co Plc <BP.L> and Shell <SHEL.L>.
The deal, spearheaded by Saudi Arabia, Venezuela and Mexico, excludes OPEC member Iraq, which is still under U.N. sanctions imposed after its 1990 invasion of Kuwait.
Traders say the new cuts could be threatened when an expected rise in Iraq's U.N.-monitored Iraqi sales occurs later this year under an expanded programme to obtain food and medicine.
A price fall of 40 percent from October to mid-March shaved billions of dollars off OPEC revenues and helped swell global stocks to a 20-year high.
The slump has been caused by weak demand in cash-strapped Asian countries, an earlier 10 percent rise in OPEC's output limits, a mild winter and increased Iraqi exports.
An OPEC communique appealed to other non-OPEC oil exporters who have not yet offered reductions to support the market by moderating output.
"The problem is the jury is still out on whether the Riyadh pact will actually change market sentiment. We probably won't have an answer for two to three weeks," said Peter Gignoux on the energy desk at Salomon Smith Barney.
Iran leant weight to the accord after the meeting when oil minister Bijan Zanganeh said his planned reductions would definitely remove Iranian oil from the market.
Its approach to the pact's implementation had until then been unclear. Iran has been unable to pump at its official quota level and there had been concern that it might seek to cut from that level, a move that would not have changed output.
07:29 03-31-98
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