NICOSIA: The surprise decision last month by the Organization of Petroleum Exporting Countries (Opec) to cut its oil output ceiling by 900,000 barrels per day, has reversed the downtrend in prices since August and lifted the Opec basket price back above the median level of 25 dollars a barrel.

According to the Middle East Economic Survey (MEES), this switch in strategy — aimed at pre-empting a contra-seasonal stock build up in the fourth quarter of 2003 and early 2004 — demonstrates that Opec decision-makers are now taking a proactive approach to oil prices, compared to their reactive stance of the past.

But Opec’s policy of supply management to maintain prices within the group’s preferred 22 to 28 dollars a barrel price band implies a preparedness to cede market share to producers outside the organization, unless non-Opec producers contribute output cuts of their own as they did in 1999 and 2002.

The readiness of non-Opec oil producers, such as Russia, Norway and Mexico, to cut output in the future has become a main force of attention since the latest Vienna meeting.

Traders, who say the move tightens the supply-demand balance at a time when stocks remain at the lower end of their five-year range, will be looking at monthly oil forecasts out this week, for hints as to whether the rise of more than two dollars a barrel in crude prices since the Opec meeting may have a dampening effect on demand.

Even the rising diplomatic tension over the Iranian nuclear programme is emerging as a potentially supportive factor of increasing stocks.

With Opec itself, member countries have suggested that they are reaching the point where major new output cuts, whether decided at an upcoming meeting in Vienna in December or in 2004, will need to be matched by cutbacks from non-Opec producers.

Opec’s president-elect, Indonesian Oil Minister Purnomo Yusgiantoro, said Opec could decide fresh output cuts at its next meeting, but that these would depend on non-Opec cutting as well.

He hoped that non-Opec countries, such as Russia, Angola and Mexico, would agree to reduce their production by up to 500,000 barrels per day.

In earlier statements, the organization’s current president, Qatari Energy Minister Abdallah al-Attiyah, said Opec would not be prepared to cut below two million barrels per day without non-Opec contributions.

He added that the group was focused on maintaining the basket price near 25 dollars a barrel and not the issue of Opec’s market share.

Opec’s willingness to defend not just the 22-28 dollars a barrel price band but the median point of 25 dollars a barrel has also demonstrated that the balance of Opec price policy is on the hawkish side.

Venezuela’s President Hugo Chavez even went so far as to suggest on October 1 that Opec should raise its price band to 25 to 32 dollars a barrel, although the MEES report says it is unlikely that this proposal would be supported within the organization and may be more related to the state of Venezuelan-US relations.

Opec’s switch towards a pro-active, forward thinking approach to oil supply and prices looks likely to deliver the group’s stated aims in the short term. Yet with US oil stocks building for the fifth consecutive week, the real pressures will come to bear on prices in the weeks and months ahead.

From Opec and non-Opec statements since the September 24 meeting, there is plenty of work to be done on agreeing upon acceptable oil price levels. However, if prices revert to their downwards trajectory, as some expect, both Opec and non-Opec officials will find it easier to agree to a common approach to cutting oil supply.—dpa