RIYADH, Jan 20: Opec production cut, effective from January 1, and continued production problems at several places are starting to have impact on the global crude markets and tightening oil markets.

US crude inventories have reportedly dropped by three million barrels in the week to January 7, to almost 289 million barrels. The US data also showed a 500,000 barrels decline in US heating oil stocks to 49.6 million barrels. This was despite the fact that overall distillates supplies increased by 1.9 million barrels to 123 million.

Combined with a series of production hitches across the globe- Nigeria, US Gulf of Mexico, Norway's North Sea and Iraq the situation has rekindled worries of supply disruption. All these things when added together start to paint a tighter overall picture for crude.

In the meantime, Opec supply cuts are also starting to have their impact on the global crude markets. A Platt's survey released on January 11 indicated that Opec's production in December was already less than its November output.

Excluding Iraq, which does not participate in Opec output accords, the ten members with crude output quotas pumped an average of 27.91m bpd in December, 110,000 barrels per day (bpd) down from November 28.02m bpd, but still more than the official 27m bpd official production ceiling, Platts concluded.

Saudi production during December was recorded by Platts at 9.5 million bpd. However with an output cut of 1 million bpd coming into effect from January, Saudi Arabia has already announced cutting its output by 500,000 bpd to 9 million bpd from the beginning of this month.

The Saudi production after the cut is almost in line with the official Opec Saudi quota of 8.775 million bpd. Iran has also been producing at below its Opec output quota.

Iranian oil minister Bijan Zanganeh says Iran was currently pumping at a level of 3.8 million bpd, almost 160,000 bpd less than its official quota of 3.964 million bpd. Indonesian production in December was also below the 1.3999 million bpd quota allocated by Opec.

Venezuela is also still struggling to fully recover from a crippling two month strike in the winter of 2002, 2003. In December, it produced 2.650 million bpd less than its output quota of 3.107 million bpd.

The reduced output by some of the major oil producing states is also starting to have its impact on the crude market, as supplies shipped earlier were just making into the markets, a few weeks after being shipped. Hence the impact of any output cut could also only be visible after a few weeks.

Market sentiments are being affected by various threats to supply. There are fears of supply disruption. With elections in Iraq looming large and insurgents making it a point to try and disrupt the process, the oil infrastructure in Iraq continues to be a prime target.

Nigerian output has also been regularly stymied by ethnic violence and disputes with the oil majors, Shell and Chevron Texaco. Company engineers succeeded last week in bringing back pumps back on line, after six weeks of disruptions in the Niger Delta.

Oil output by the world's number three exporter after Saudi Arabia and Russia also fell to 2.58 million bpd in December from 2.77 million in November, hit by closure of the 205,000 bpd Snorre and Vigdis fields after a gas leak on Nov 28.

The Norwegian Petroleum Directorate said that the 2004 oil output figure was 2.8 per cent below previous forecasts, largely due to closure of Snorre and Vigdis.

On Jan 12, operator Statoil won a green light to restart almost half production. Production by the non-Opec producer was also dented in 2004 by a four-month rig workers' strike.

Further to this the impact of the scheduled, 1 million bpd output cut enforced by Opec from the beginning of the new year was expected to be felt only in the coming weeks.

These signals have made the markets once gain apprehensive. Consequently crude markets have once again started to behave erratically. Prices after hovering around $40 a barrel for considerable period of time have once again been seen touching six week highs over the last few days.

The next few weeks, could be important for crude markets. In case the winter gets harsher in the Western hemisphere, things could again get back to where it was in mid-October last year.