Petrol prices may drop 5c; OPEC eases oil crisis

Petrol prices could fall by as much as five cents a litre over the next fortnight after OPEC nations yesterday caved in to pressure from the United States and agreed to increase crude oil output by 1.45 million barrels a day.

The three-month agreement, signed by nine of the 11 Organisation of Petroleum Exporting Countries in Vienna, will increase production by about 6.3 percent.

It was welcomed by Australian oil industry and motoring organisations.

The OPEC decision effectively ends fears by some analysts that pump prices could reach $1 a litre by the end of the year.

So far this month prices have dropped from a high of about 93 cents a litre in Melbourne two weeks ago to about 83 cents a litre yesterday in anticipation of an announcement.

Industry experts were cautiously predicting a further drop of about three cents a litre and even a fall of as much as five cents, depending on a possible strengthening of the Australian dollar, which will influence import prices.

It is expected the initial impact at the pump will be seen within two weeks.

The deputy director of the Australian Institute of Petroleum, Mr Ewen Macpherson, said: "There will be some impact on the market, but perhaps not as much as had been first hoped for.

"I think there will be some downward pressure on prices but it's a bit hard yet to know how much that will be."

The United States President, Mr Bill Clinton, whose Government is taking a large slice of the credit for forcing the OPEC decision, which does not include participation by Iran and Iraq, said the increase in output would help sustain worldwide economic growth and provide a greater balance between oil supply and demand.

OPEC, which includes Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela, produces more than 26 million barrels of crude oil a day - about 35 percent of the world's supply.

The US has long been attempting to convince OPEC that a slowdown in the world economy would adversely influence barrel prices.

A White House spokesman, Mr Joe Lockhart said: "We worked hard ... in making the case that it's in OPEC's interest to make sure the worldwide economic growth continues."

Yesterday, the Singapore TAPIS index, which dictates Australia's barrel price, was running at an average of $US27.40 a barrel. Industry predictions on the impact on barrel prices varied, with figures ranging between $US25 in the short term to as low as $US20 over three years in line with futures market projections.

OPEC is believed to be aiming at a barrel price of $US20-$US25.

The RACV's manager of government relations, Mr David Cumming, predicted that pump prices could fall as low as the "high 70s" in some Melbourne metropolitan petrol stations but that country stations would still be paying substantially more, probably in the high 80s.

"It is good news for motorists but you have got to remember that only a short time ago we were seeing prices of 59.9 cents, so the news isn't that good," Mr Cumming said.

OPEC eases oil crisis

By BARRY FitzGERALD, Resources Editor

World oil prices were largely unmoved yesterday in response to the Vienna agreement by Organisation of Petroleum Exporting Countries to increase their oil production quotas by 1.4 million barrels a day.

The lack of a dramatic response in oil prices was due to the production boost being well anticipated, coming as it did after months of heavy pressure by the United States and the European Union on the oil cartel to bring down oil prices.

The expectation that OPEC would meet the US and EU demands was reflected in the oil price fall from $US34 a barrel earlier in the month to around the $US27-28 a barrel in recent days.

After the OPEC decision the price for crude oil for May delivery on the New York Mercantile Exchange rose nine cents to $US27.18 a barrel.

Traders were expecting European benchmark crudes to open slightly weaker in early trade last night, with a modest 25 US cents price fall to $US25.51 a barrel in the Brent price on the cards.

At the Vienna meeting, nine of OPEC's 11 member countries agreed to the daily production boost of 1.4 million barrels a day.

Iran objected to the agreement and will not participate. OPEC member Iraq was not part of the original production limits.

The Iranian Oil Minister, Mr Bijan Namdar Zanganeh, said Teheran could not support an the quota relaxation.

"Our difficulty is on principle and not merely a few barrels. We tried hard to show and prove our flexibility but ... we could not reach a unanimous decision," he told reporters.

"Our organisation is not a political organisation. We called on my colleagues to take a decision purely on economic and fundamental factors," he added.

The OPEC secretary-general, Mr Rilwanu Lukman, played down Iran's exclusion, saying: "It does not mean OPEC is disunited."

He said the accord would be reviewed in three months' time at a specially convened OPEC meeting on June 21.

The US President, Mr Bill Clinton, immediately welcomed the accord, saying: "These increases will help sustain worldwide economic growth and provide greater balance between oil supply and demand."

A boost of 1.4 million barrels a day would put the combined quota for nine OPEC members participating in the agreement at 21.069 million barrels a day, up from 19.617 million. Iran's previous quota was 3.359 million barrels a day. The increase in production quotas is the first since November 1997. Because of low global inventories, analysts expect an OPEC target floor price of about $US25 a barrel is achievable.