OPEC Agrees to Surprise Oil Output Cut

Filed at 11:22 a.m. ET

VIENNA, Sept 24 (Reuters) - OPEC producers agreed a surprise cut in oil supplies on Wednesday that could raise fuel costs this winter and hamper economic growth.

The Organisation of the Petroleum Exporting Countries agreed to remove 900,000 barrels a day from output limits for 10 members to 24.5 million barrels daily effective November 1, ministers said.

"We don't want the market to collapse on our heads," said Nigerian Presidential Adviser on Energy Rilwanu Lukman. "Stocks are rising and prices were falling and Iraq is on its way back so wouldn't you be cautious?"

The decision could inflate energy bills for oil importing nations during the northern hemisphere winter.

Benchmark U.S. light crude futures by 1500 GMT jumped $1.13 to $28.28 a barrel.

"If oil prices continue to move higher, then interest rates in the G7 may need to be higher than they would otherwise be which is not good for recovery prospects," said Paul Robson, international economist at Bank One Corp in London.

"I think it is very bullish for oil prices," said Gary Ross of New York consultancy PIRA Energy. "The hedge funds are short and they will be running for cover. It shows that OPEC cares more about revenue and price than anything else."

OPEC ministers had watched world oil prices ease this month to four-month lows, despite a sluggish recovery in post-war Iraqi output.

But several ministers walking into Wednesday's meeting had said they expected no change in output.

The recent price fall and projections that increasing volumes from rival non-OPEC suppliers like Russia were swamping demand growth saw a change of minds.

Ministers were worried about a counter-seasonal crude stockbuild during the fourth quarter and Iraq's continued recovery towards pre-war supplies.

"We believe that we have about 2.5 million barrels a day of oversupply in the first quarter of 2004 and it's better to start before to prevent a bad situation," said Iranian Oil Minister Bijan Zanganeh. Projections for 2004 from the International Energy Agency, adviser on energy to 26 industrialised nations, are for 1.4 million bpd of extra non-OPEC supply and only 1.1 million bpd of demand growth on the 79 million bpd world market.

Iraq, attending its first OPEC meeting since U.S. occupation, reassured fellow members that Washington's influence would not prevent it staying in the cartel.

"Iraq will remain in OPEC as a full member," Iraq's new Oil Minister Ibrahim Bahr al-Uloum told a news conference.

He said Baghdad's reintegration into OPEC's quota system would have to wait until Iraqi production, still to reach pre-war volumes, had been restored.

Ministers agreed to meet again on December 4 in Vienna to review policy for the first quarter.

They postponed a discussion on the election of a new secretary-general until that meeting.