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OPEC Giants Dismiss Sharp Oil Price Fall
By Michael Georgy  Reuters
DUBAI — Saudi Arabia and Iran, two of the world's biggest oil producers, on Monday put a brave face on the sharp price slump and vowed to keep a tight rein on production until high stockpiles are depleted.

The two OPEC powers said separately that last week's selloff was driven by speculation, not market fundamentals, which they said remained bullish.

For the first time, Saudi Arabia joined a growing list of major oil producers who left open the possibility of extending a production cut pact beyond its March expiry if the glut had not been eliminated.

"Saudi Arabia thinks the cuts should continue until March and even after that the possibility of an extension is there," a Gulf source close to oil policy in Saudi Arabia, the world's biggest oil producer and exporter, told Reuters.

The supply restraints have rescued the global oil market from last year's crisis when crude prices fell below $10 a barrel. But after more than doubling since the March cut agreement, prices took a big hit last week after reports that OPEC production was rising.

Oil plunged $3.60 a barrel last week just days after hitting a 33-month high. Some traders attributed the selloff to speculators rushing to liquidate long (overbought) positions amid doubts about OPEC production discipline.

The fall presented oil producers with their toughest challenge since the March agreement to cut production by more than two million barrels per day (bpd) and refocused the spotlight on their resolve.

Iran, OPEC's second largest producer, said that the cartel would maintain at least 90 percent compliance with the production limits.

"Compliance has been above 90 percent over the last four months and it will remain at this high level," Iran's OPEC governor, Hossein Kazempour Ardebili, told Reuters by telephone.

Ardebili said OPEC production curbs were designed to drain two million bpd in stocks in the fourth quarter of this year and three million in the first quarter of 2000.

"This is our aim and we are confident this will happen. This drawdown will get prices to a stable level. Otherwise prices will remain volatile," said Ardebili, senior adviser to Iranian Oil Minister Bijan Zanganeh.

IEA Sees Stubborn Stock Levels

The comments came just before the International Energy Agency (IEA) said oil stocks in key consuming countries fell only slightly in August and may have actually risen in the third quarter as a whole despite OPEC production curbs.

That contrasted to expectations that OPEC restraint and a sluggish non-OPEC supply response would tighten the balance of supply and demand and lead to a drawdown in stocks.

The IEA also presented a bearish view on OPEC's oil output in September, saying it rose and reduced the cartel's compliance with the self-imposed supply curbs.

Saudi Arabia had a more optimistic view of output cut compliance and stock levels.

"Saudi Arabia believes strongly that compliance is still high," the Gulf source said.

"The stock levels have started to go down. In some areas they are uneven but are going down gradually. There is no doubt it is going down," he added.

Asked what would push OPEC to keep the supply curbs in place after they expire in March, the Gulf source added: "It has to do with the price at the time, stock levels and the supply and demand picture for next year."

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