Despite speculation that OPEC may renege on its promised April 1 quota cut in the face of recent oil-price gains, the cartel affirmed it would go through with that 1-million-barrel per-day cut, or 4% of production. After the quota cut was formalized, media reports immediately speculated that crude prices could hit $40 per barrel-if the cartel sticks with the newly lowered production target. With OPEC, however, that's a big if. Many industry analysts immediately doubted the new quota would be upheld, considering OPEC's history of overproduction. And the markets seemed to take a subdued view of the news as well-oil futures on Nymex settled at $34.39 after the news, compared with a close of $35.73 the previous week. In February, OPEC-10 members (excluding Iraq) had agreed to immediately cut 1.5 million barrels a day of excess production, and to lower the official output quotas by 1 million barrels a day-to a total of 23.5 million barrels a day-starting April 1. In a written statement affirming the cut, the cartel maintained that the oil market is more than well-supplied, and that high oil prices are a consequence of "long positions of market speculators in the futures markets, coupled with a tightening in the U.S. gasoline market in some regions, and exacerbated by uncertainties arising from prevailing geopolitical concerns...." However, OPEC is the catalyst for the actions of market speculators, International Energy Agency head Claude Mandil said in France's Le Monde. "OPEC blames speculators as the origin for fueling higher prices, but who fuels the speculation, if not restrictions on production and low stocks? I think that OPEC is largely responsible for the speculative fund action on the oil price," the newspaper quoted Mandil. OPEC's assertion that the U.S. market is well-supplied appeared to have some merit, as the Department of Energy reported a 5.7-million-barrel growth in U.S. commercial crude oil inventories for the week ending March 26. That figure is almost three times as large as the market's expectation of a 2-million-barrel increase, Paul Y. Cheng, an analyst with Lehman Brothers, said in a report after the news. "Over the past two weeks, domestic crude oil inventories have increased by an enormous 13.2 million barrels. The main reason behind the surge has been elevated crude oil imports that have averaged 10.1 million barrels per day in each of the past two weeks." OPEC's reduced quotas, robust global demand, fear of terrorist attacks in the Middle East, violence in Iraq and a worrisome political situation in Venezuela should keep West Texas Intermediate prices in the $30- to $35-per-barrel range through the first half. However, Cheng expected prices will fall below $30 per barrel by the second half, due to rising global inventories and a potential slowdown in China's growth rate. Michael Mayer, an analyst with Prudential Securities, had a similarly bearish view. He expected the new quota will not be strictly upheld, and prices will fall later this year. "We expect compliance with this new quota to be minimal and forecast actual production for the OPEC-10, which is currently about 25.5 million barrels a day, to drop to about 25.0 million barrels a day in April and average about 24.5 million barrels per day in the second quarter," Mayer said in a report. Mayer estimates the call on OPEC-10 during the second quarter-generally a time of declining demand-will be about 22 million barrels per day, meaning inventories will build by about 2.5 million barrels per day in the second quarter. Over the course of 2004, he expects inventories will build by about 1 million barrels per day. Meanwhile, Iraqi production is rapidly building; production is now about 2.5 million barrels a day, higher than any quarterly average in more than two years, he added. "Under these assumptions, oil prices should drop at least [between] 15% and 20% to about $28 a barrel over the next six months," he said. "Of course, the possibility of supply disruptions-Venezuela is at the top of the list-could affect the supply/demand balance."