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14 Dec 2006 16:00
The Organisation of the Petroleum Exporting Countries (Opec) has agreed an oil-output cut of 500Â 000 barrels per day, or 2%, delayed until February 1 when the northern winter is ending, Qatar’s oil minister said on Thursday, sending oil prices more than a dollar higher.
By postponing a further reduction until peak demand has passed, Opec is responding to importer nations’ concern that a cut now will drive prices higher and hurt their economies.
The group that pumps over a third of the world’s oil has already curbed output this year—by 1,2-million bpd to 26,3-million in October to halt a 10-week, 25% price slump.
As recently as last week there was little doubt a further cut of at least 500Â 000 barrels per day would follow from January 1.
But with oil above $60 and consumer nations on edge the mood shifted in some delegations towards a delay.
Before Thursday’s meeting Opec ministers were in agreement the market is oversupplied—stocks in top consumer the United States are the highest since 1998 for the time of year—but they wanted to get their timing right.
Cut too soon and prices could spike. Delay, and prices could fall sharply in the second quarter as demand slackens.
Saudi Oil Minister Ali al-Naimi said the market is in better shape now than when ministers last met.
He estimated Opec had succeeded in removing half the excess 100-million barrels.
“The fundamentals of the market are much better than they were in October,” he said. He added he hoped the market would achieve a better balance after Opec’s decision.—Reuters
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