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OPEC ministers to ratify 5 percent cut in crude output London-based Center for Global Energy Studies says reduction of 1.5 million barrels a day won’t have negative impact on consumers by The Associated Press
OPEC’s top official confirmed Jan. 17 that all its members now favor a decrease of 1.5 million barrels a day in crude oil production, or 5 percent of their current output.
The cuts, which are to take effect Feb. 1, are aimed at keeping crude prices firm ahead of an expected slowdown in U.S. economic growth and diminishing seasonal demand for refined products such as heating oil.
OPEC representatives were to meet informally later in the day to work out details of the cutback, before ratifying it in a formal session at OPEC headquarters. It could have been worse “No one is opposed to it,” OPEC president Chakib Khelil said of the planned reduction.
His comments came on top of assertions by Saudi Arabian Oil Minister Ali Naimi and others that the Organization of Petroleum Exporting Countries had reached a consensus on a cut of this size.
The decrease in production is sure to disappoint the governments of many oil-importing nations. The United States and European Union had lobbied hard for OPEC to keep crude flowing at current levels, given their fears of worsening economic fragility and a possible global recession.
Still, a curtailment of output might not matter much to individuals.
“The cut is not going to have a negative impact on consumers,” predicted Leo Drollas, chief economist of the London-based Center for Global Energy Studies. “It’s not too bad. It could have been worse.” Iraq the wildcard Perhaps the biggest wildcard for consumers and OPEC alike is Iraq, an important cartel member, which continues to withhold the bulk of its crude from the market. Iraq is embroiled in a pricing dispute with the United Nations, which regulates all Iraqi exports.
Iraq has not participated in the cartel’s production agreements since the 1991 Gulf War, and OPEC members said they aimed to trim output regardless of what Iraq does.
However, Saudi Arabia, Qatar and others in the group suggested that OPEC members would make up for any shortfall created by an Iraqi withdrawal from the market, thereby helping to contain any surge in prices.
Iraq has slashed its crude exports by approximately 1.7 million barrels a day, shipping just 600,000 barrels a day in December. The interruptions have continued this month. Recent highs above $30 a barrel Oil prices have surged in recent weeks, jumping above $30 a barrel last week in the United States where they reached a four-week high.
Drollas predicted that U.S. benchmark light, sweet crude would stay around $28 a barrel in the first quarter as a result of OPEC’s planned production cut.
OPEC members fear that prices could collapse if demand softens, and energy analysts have said a decision to reduce output was a foregone conclusion.
In recent weeks, Saudi Arabian officials had publicly advocated cutting OPEC’s current quota by 1.5 million barrels.
Qatar had sought a cut of 2 million barrels a day, but it moderated its stance. An Iranian source, speaking on condition of anonymity, suggested earlier that Iran — OPEC’s No. 2 producer - would ease its demand as well.
OPEC typically acts only with the unanimous agreement of all its 11 members.
The group is eager to avoid repeating its mistake of December 1997, when it decided to boost output shortly before the Asian financial crisis throttled demand. Prices bottomed out a year later at around $10 a barrel.
OPEC supplies almost two-fifths of the world’s crude, and it wants to keep prices firm even if the U.S. slowdown infects the economies of other major oil-importing nations. Its current quota is 26.7 million barrels a day.
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