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OPEC members vote to cut output by nearly 4% Cartel says decision is a pre-emptive effort to keep crude oil prices from plunging when demand slackens early next year Bruce Stanley AP Business Writer
Despite earlier signals from OPEC that it would hold oil output steady, fears of a possible oversupply of crude persuaded its members instead to lower their output ceiling by 900,000 barrels a day.
The Organization of Petroleum Exporting Countries defied expectations and decided Sept. 24 to cut its target to 24.5 million barrels starting in November. The 3.5 percent cut caused crude futures to surge more than $1 a barrel and drew a harsh response from the energy watchdog for major oil importing countries.
However, OPEC defended its decision as a pre-emptive effort to keep prices from plunging when demand slackens early next year, and some analysts said the cut would have little impact on the prices consumers pay for heating oil and gasoline.
OPEC reached the agreement at its Vienna headquarters in a meeting that included Iraq for the first time since the toppling of Saddam Hussein. Iraq is a founding member of OPEC, which pumps about a third of the world’s crude.
Claude Mandil, head of the Paris-based International Energy Agency, expressed disappointment at the decision, which came ahead of the busy winter heating oil season in the northern hemisphere.
The IEA is the energy watchdog for the Organization for Economic Cooperation and Development, a group of the world’s richest industrialized nations.
“Given the continued weakness in the world economy, OPEC’s strategy to maintain prices at persistently high levels can’t contribute to a sustained recovery and return to global economic growth,” Mandil said in a statement.
White House spokesman Scott McClellan, with President Bush in New York, would not comment directly on OPEC’s decision but said the economy depends on stable oil supplies and prices. More cuts could follow At current output levels, OPEC predicts that the daily supply of crude will outstrip demand by 2.5 million barrels by next April. Iranian Oil Minister Bijan Namdar Zanganeh called the cut a possible “first step” and did not rule out an additional reduction later in the year.
“It is better that we start before we witness a very bad situation in the market,” he told reporters before the group’s oil ministers met in private to approve the cut.
OPEC also wants independent, non-OPEC producers such as Russia to take “concrete measures” to restrain their own output, Ibrahim said, although the cartel is not making its cut conditional on their cooperation as it did in December 2001.
A 14 percent slide in crude prices this month and expectations of a buildup in oil inventories compounded OPEC’s fears of a further softening of the market. Iraq oil a factor Iraq’s gradual return to the market was another factor. Zanganeh noted that a cut of 900,000 barrels would return OPEC’s output target to what it was until April, when the war in Iraq removed that country temporarily from the market.
In a symbol of the growing acceptance of Iraq’s U.S.-backed leadership, the newly installed Iraqi oil minister, Ibrahim Bahr al-Uloum, took his place between counterparts from Kuwait and Iran at the U-shaped table in the OPEC Secretariat.
Iraq did not seek a production quota of its own. It only produces about 1.8 million barrels of oil a day — 700,000 barrels less than on the eve of the war in that country. It exports some 900,000 barrels a day, al-Uloum said in a separate news conference. Benchmark still $22 to $28 per barrel OPEC wants to keep the price of its benchmark blend of crudes stable within a targeted range of $22 to $28 a barrel. The benchmark price stood at $25.14 on Sept. 22, the most recent day for which OPEC calculated it.
Crude oil futures soared on reports about OPEC’s planned decision. Contracts of U.S. light, sweet crude for November delivery rose $1.11 to settle at $28.24 a barrel on the New York Mercantile Exchange. November contracts of North Sea Brent crude rose $1.15 to settle at $26.67 a barrel on the International Petroleum Exchange in London. Norwegian adviser predicts additional OPEC cuts Tor Kartevold, a special adviser on the oil market for Norway’s state-owned company Statoil, argued that OPEC’s cut would have little impact on consumers. It was obvious that the market would weaken in the fourth quarter unless OPEC acted soon to scale back supplies, he said.
“I think they will have to cut further, possibly later this year,” Kartevold said.
Other analysts noted that prices for heating oil prices were more sensitive to a sudden cold snap than to OPEC production cuts.
The group plans to meet again Dec. 4 to reassess market conditions.
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