ENERGY - Norway output cut boosts oil prices 7% to $20/barrel

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BBC - Norway output cut boosts oil price Both Mexico and Norway have pledged to help Opec

Crude oil prices in London have leapt almost 7% higher, breaking back through the $20 per barrel mark.

The sudden surge came after Norway said it had agreed to mirror the behaviour of the Opec cartel by reducing supply in order to boost prices.

"The government has decided that if Opec and non-Opec countries carry out cuts, then I have got a mandate to carry out cuts of 100,000 to 200,000 barrels a day," Norwegian Oil Minister Einar Steensnaes said.

The news prompted renewed confidence that Opec will push through its own cuts which were agreed on the condition that Russia, Mexico and Norway followed suit.

All eyes on Russia

Norway's decision to support Opec leaves Russia in the spotlight since Mexico has already made a firm commitment to reduce output.

Opec chief Ali Rodriguez has said that he was "very confident" that Russia would cut production.

"We are very confident of a rational decision by President Putin and the authorities in Russia," Mr Rodriguez said.

But analysts - and the signals from Russia itself - have been mixed so far.

A deep cut from Russia would represent a political coup for Opec and renewed proof of its power over the world's oil markets.

Rollercoaster prices

Oil prices hit a two and a half year low at the beginning of this week, slipping to $16.65 per barrel.

But renewed hopes of concerted action from Opec has seen prices touch $20.00 per barrel on Thursday.

Last year, the oil price soared to more than $30 a dollar, prompting widespread fuel protests in September after the strong crude oil price fed through to prices at the petrol pump.

Since then, a number of leading analysts have predicted that oil prices will slump back to £10 per barrel or even lower.

The falls stem from a huge excess of crude oil, caused largely by heavy production in recent years from the three main non-Opec exporters.

This has coincided with reduced demand due to the global economic slowdown which means less fuel is burnt in factories and industrial plants around the world.

Cynical view

However, some cynics question whether the Norwegian cuts would actually materialise, arguing that it is just a cosmetic move to appease Opec.

"These are big cuts and they would be from producing oil wells. One wonders how would the companies do this, would they be happy to shut down production that is making them money with oil prices," Leo Drollas at the Global Centre for Energy Studies told the BBC's World Business Report.

"You might get some cuts, whether you get 200,000 barrels a day is a moot point," he added.

Previous 'cuts' in Norway have involved reducing planned future capacity as opposed to turning off existing taps.

-- Anonymous, November 22, 2001


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