ALGIERS, Algeria - OPEC's unexpected, two-pronged strategy for stabilizing prices - curbing excess production of crude and trimming its members' output quotas by one million barrels a day - could end up costing consumers more to fill up their cars and heat their homes, analysts say.
The Organization of Petroleum Exporting Countries agreed Tuesday to reduce output to try to keep oil prices stable when warmer weather erodes demand in the United States and other major importing countries. The combined cuts, if effective, would squeeze OPEC's actual production by as much as 10 percent, or 2.5 million barrels a day.
What this means is that consumers are going to carry on paying loads of money for their gasoline for quite some time
said Jan Stuart of FIMAT USA, a New York brokerage.
Patrick Ward, an analyst at ABN/Amro in New York, estimated that OPEC's decision could add 5-10 cents a gallon to the average U.S. retail price for unleaded gasoline.
OPEC often has urged its members to comply better with their agreed quotas, but its decision to make an additional cut, effective
April 1, in its official target of 24.5 million barrels surprised energy markets. Oil ministers from the group said they believed their action would send a strong signal about OPEC's willingness to take a hands-on approach to managing oil supplies.
Everybody will know that the organization is serious and we would like to have a stable market said Libya's representative, Abdulhafid Mahmoud Zlitni, speaking after OPEC delegates ratified their output decision in the Algerian capital, Algiers.
Oil prices, which were higher before the announcement, extended their advance.
North Sea Brent crude for March delivery closed 93 cents higher at $30.04 a barrel in London, while March contracts for light sweet U.S. crude were up $1.04 at $33.87 a barrel in trading on the New York Mercantile Exchange.
I don't think OPEC wants them to go much higher. It would destroy too much demand and encourage too much competing production
Stuart said. Higher crude prices encourage non-OPEC producers such as Norway and Mexico to ratchet up output and grab market share.
OPEC's emphasis on the need to curb over-production was a sign of some discipline that should, in itself, help firm up crude prices firm in coming weeks and months, said John Waterlow, an analyst with Wood Mackenzie Consultants in Edinburgh, Scotland.
The April cut in production could bite even deeper into consumers' wallets, Michael Rothman of Merrill Lynch added.
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