The Organisation of the Petroleum Exporting Countries (OPEC) agreed yesterday to cut the supply of oil to world markets and defend higher prices in spite of concern about the impact of $40 (€30.23)-a-barrel oil on economies, businesses and households.
OPEC ministers agreed an effective cut in production of one million barrels a day (bpd) by saying they would trim production back to the cartel's official output ceiling of 27 million bpd.
They also raised the prospect of further production cuts next year if crude prices fall.
Sheikh Ahmad al-Fahd al-Sabah, Kuwait's oil minister, said possible cuts in the quota itself of up to one million bpd would be on the agenda at OPEC's next meeting on January 30th. That meeting would also discuss raising OPEC's official price target, which has remained above its upper limit for the past 12 months, the minister said.
The combined effect of the cuts and hardening stance was to signal that OPEC was determined to defend crude prices at levels above its official target range of $22-$28 a barrel.
Ministers indicated OPEC's target price range could rise beyond $30 early next year.
Markets reacted sceptically to the cuts, which would amount to a reduction of 4 per cent if the notoriously ill-disciplined cartel adheres to the agreement. US crude oil futures fell as much as $1.03 to $41.50 on news of the deal and reports of higher pumping from Iraq.
The International Energy Agency (IEA), the industrialised countries' oil watchdog, warned yesterday that OPEC should not overdo any cuts.
The IEA said in its monthly report that an oil price above $40 was "still high" and that capacity constraints, geopolitical uncertainty and demand growth "will not disappear overnight".
Sharp rises this year, taking nominal crude prices above $50 a barrel, ignited global fears of higher inflation and slowing economic growth.
But OPEC ministers claimed that their actions this year to boost the cartel's output to 25-year nominal highs had contributed to the near 25 per cent fall in crude prices from their peaks in October.
The oil price decline has been more acute for OPEC producers, which have seen their basket of crude prices drop by 27.5 per cent from the October high, while the dollar has also fallen sharply.
Mr Bijan Namdar Zangeneh, Iran's minister for petroleum, said: "We are concerned especially about the dollar devaluation... because we lose more than 30 per cent of our revenue by the dollar depreciation."
The proposed production cut would take effect from January 1st but is not expected to hit consumers until February, after the peak winter demand period, given the time that it takes to transport oil from the Middle East to the main markets.
OPEC delegates said the decision to cut supply was due to the slowdown in oil demand growth, which would result in an oversupply of oil of about 1.6 million bpd in the first quarter and 2.8 million bpd in the second quarter.
Mr al-Fahd al-Sabah said any decision on a quota reduction in the next meeting would be aimed at curbing rises in global oil inventories once peak winter demand had passed in January. - (Financial Times Service)
