The Organisation of Petroleum Exporting Countries (Opec) on Friday agreed to cut production back to target production levels early next year, delegates said, in a bid by the organisation’s 11 member states to stave off further falls in the world price while trying to avoid a new frenzy of buying.
Opec still has to approve the decision officially. But delegates to the group’s meeting on Friday said that will just be a formality, with all member nations now committed to the agreement.
If implemented, the 10 Opec members bound by quotas will pump about one million barrels a day less than present levels to scale back to the group’s overall ceiling of 27-million barrels a day.
Asked when the cut in overproduction will start, Kuwait’s Sheik Ahmad Fahad Al-Ahmad Al-Sabah said: ”Everyone has committed for next month, maybe to start from February.”
He said all Opec members are committed to full compliance with the current total production ceiling of 27-million barrels a day and taking excess oil off the market.
Al-Sabah estimated Opec’s overproduction at about 1,7-million barrels a day. Other ministers have put it at 1,1-million barrels.
Iran’s Oil Minister, Bijan Namdar Zangeneh, said a cut of about one million barrels a day was to be discussed at the formal policy talks later on Friday.
Kuwait’s Al-Sabah said Opec will likely meet again in early February to ”follow up on the situation of the market”.
Algerian Oil Minister Chakib Khelil said on Friday that implementation of cutbacks will start ”40 days from now”.
Sentiment for turning down the spigots gathered momentum earlier this week when oil giant Saudi Arabia indicated it was receptive to the idea.
In comments published on Friday, its Oil Minister, Ali Naimi, told the London-based Arab newspaper Al-Hayat that he supports cutting production by one million barrels a day.
”It’s important that we stop the collapse of oil prices,” Naimi told the paper. Al-Hayat reported that if Opec decides to cut overproduction, Saudi Arabia will cut its January production by 500 000 barrels a day.
Libyan Oil Minister Fathi bin Shatwan, meanwhile, said some Opec countries will be able to start cutting back overproduction right away, while for others the process will take more time.
Concern about oil glut
The Opec meeting comes amid members’ concern about a possible oil glut in the second quarter of 2005 and prices that are now a quarter below their peaks above $55 a barrel.
Consuming nations, meanwhile, have called on Opec to keep output high to underpin economic recovery.
While some quota busting will likely continue, any formal decision to lower output is expected to send at least a signal to markets that Opec wants to defend current prices.
Apparently bolstered by Opec plans, benchmark light, sweet crude for January delivery was trading at $42,94 per barrel on the New York Mercantile Exchange in electronic trade, up 41 cents from its overnight closing price. Brent crude was fetching $40,33 on the International Petroleum Exchange, up 52 cents.
Opec’s two other options — doing nothing and risking continued losses, or reducing the quota target and precipitating a new oil crisis — were clearly not appealing to members. Their decision to try to bring output down to the set level of 27-million barrels appears to be a bid to reduce the risks both ways.
With the 10 Opec members who subscribe to quotas pumping at least one million barrels a day above their target, the decision to respect quotas means they can cut back without revising production ceiling targets.
Iraq production falls
In recent months, Opec’s members have been pumping more than 30-million barrels a day, with Iraq included. Iraq has been exempted from quotas to enable it to rebuild its economy.
But an international energy-monitoring organisation said on Friday that because of violence and other problems in Iraq, its production fell sharply last month, dragging down total Opec output.
Iraq produced 1,35-million barrels a day in November, down 400 000 barrels from the previous month, the International Energy Agency said. Factoring in that downturn, Opec pumped 29,4-million barrels daily last month, it said.
Benchmark United States crude futures have fallen by almost a quarter since the record prices of more than $55 a barrel in late October. The decline has been sharpest in the past week or so, spurred by increases in US petroleum inventories, mild winter weather, and little sign of a slowdown in Opec output.
The recent fall in prices reflects replenished stocks, slowing economies, high production by both Opec and non-Opec countries, a relatively mild northern-hemisphere winter, and less of the speculative futures buying that led oil to settle at $55,17 twice in October. — Sapa-AP