The Organization of Petroleum Exporting Countries, led by the Middle East's big oil producers, struggled to adjust production in 2000 and keep world oil prices within its targeted $22-28/bbl range.

In 2000 world oil prices more than doubled from 1999. They hit a 9-year high in early March 2000. In attempts to reduce them, OPEC increased production 1.45 million b/d in April, 500,000 b/d in June, and 800,000 b/d in September.

In early 2001 OPEC agreed to cut its production 1.5 million b/d to 25.2 million b/d in an effort to support oil price levels. The reduction was the first from OPEC in 2 years.

The production quotas for 10 of OPEC's 11 member (excluding Iraq) states had climbed by 3.7 million b/d in 2000 to 26.7 million b/d.

The US and the European Commission had urged OPEC not to cut output, citing concerns about market volatility and lowered stock levels.

The Center for Global Energy Studies, London, said the reduction of 1.5 million b/d, a figure closer in real terms to 1.3 million b/d because some OPEC members curbed production early, would question the credibility of the organization's price band mechanism, designed to be triggered when the calculated price of the OPEC basket of seven crudes drifted outside the $22-28/bbl range.

In a statement, OPEC said the agreed quota cuts had been reached "in recognition of the fact that current crude oil supplies far exceed demand, a situation exacerbated by the slowing growth in key economies.

"With the approach of the seasonally lower demand in the second quarter, unchecked production could precipitate a price collapse, serving the short and longer-term economic interests of neither producers nor consumers," the organization said.

Speaking at a later conference in Houston, Chakib Khelil, OPEC president and Algeria's minister of energy and mines, said the organization may seek to be reimbursed for the cost of carrying oil inventories.

Drawing a parallel with electricity markets, Khelil noted power generators get paid for keeping standby capacity, or "spinning reserves," available which can be called upon at the last minute.

He noted OPEC played a similar role by dipping into unused capacity to help drive high oil prices down, but received no direct compensation for keeping it on hand.

Since instituting a policy of production based on an effort to keep prices in the $22-28/bbl range, Khelil said, the organization had learned it was difficult to stabilize the market with price alone. He said demand responded to many events outside OPEC's control, including weather, the Asian economic downturn, market speculation, climate change negotiations, and product taxes. But, he said, the mechanism had improved price stability and was a "good move," allowing "us to learn as we go."

He reiterated OPEC members' contention that taxes on oil products in consuming nations were too high. "Consumers are fed up," he said, "especially when it is unclear who in government is benefiting from these revenues." And it would be a mistake to raise taxes further as a result of climate change negotiations, Khelil said.

"UN climate change negotiations have gone on for a decade," he said. "Even if the Kyoto treaty is a nonstarter, it could still have implications for the industry." He called for an industry-wide response to the challenge so there were "no net winners or losers" resulting from the negotiations.

With the prospect of the world becoming more dependent on OPEC oil well into the future, Khelil said, the organization deserved recognition as a credible, reliable supplier committed to stability. He called for an end to "sensitivity about relying on OPEC."