Opec production cut boosts oil prices

World oil prices rebounded on Wednesday above $100 a barrel after a surprise decision by the Organisation of the Petroleum Exporting Countries (Opec) to cut production by 520 000 barrels a day (bpd).

Announced after a marathon meeting in Vienna, the cut immediately boosted prices that had fallen below $100 a barrel on Tuesday, extending their dramatic decline from a peak above $147 in July amid a global economic slowdown.

Oil prices rebounded in Asian trade, with New York’s main contract, light sweet crude for October delivery, up 1,41 cents to $104,67 a barrel while Brent North Sea crude rose 1,06 cents to $101,40.

Opec president Algerian Energy Minister Chakib Khelil said the output cut would start immediately.

“If you do your own calculations, it is a cut of 520 000 barrels per day,” said Khelil, announcing a new Opec output quota of 28,8-million barrels per day.

The International Energy Agency (IEA), meanwhile, cut its estimate for global oil demand this year and next, saying consumers, mainly in the United States, are changing their lifestyles in response to high prices.

The IEA’s monthly report was printed before Opec’s overnight announcement.

US Energy Secretary Samuel Bodman had asked for producers to keep oil markets well supplied before the Opec meeting started.

But the group’s secretary general Abdullah al-Badri, insisted: “The United States can order its companies [around], but not Opec.”

Oil sank below $100 a barrel for the first time since April on Tuesday as the oil ministers gathered for the meeting.

Analysts had predicted Opec would keep official policy unchanged but would discreetly agree to rein in production by cracking down on output quotas by some members, mainly Saudi Arabia.

The final announcement was stronger than expected. It excluded Indonesia, which officially left Opec on Wednesday, and Iraq.

Explaining its decision, Opec identified a shift in sentiment in the oil market linked to falling economic growth, a strengthening dollar, easing geopolitical tensions and greater supply.

“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” it said.

Economic conditions have worsened considerably in recent months. Many European economies face recession, the United States is struggling and fears are growing about the emerging economies of Asia.

The decision appeared to be a setback for Saudi Arabia, which seemed to have favoured keeping production unchanged.

The so-called “hawks” however, led by Iran and Venezuela, who wanted to pull back production to keep oil prices high, won the argument.

They and other countries did not appreciate the Saudi decision in July to increase production by half-a-million bpd to answer the West’s concern over soaring oil prices.

Even Kuwait, which has close links with Saudi Arabia, on Tuesday called on all producer countries to respect their quotas.

Opec also announced that Indonesia had formalised its departure from the group after it became a net importer of crude.

“The conference regretfully accepted the wish of Indonesia to suspend its full membership in the organisation,” Opec said in a statement.

Russian Vice-Premier Igor Sechin reached out to Opec late on Tuesday, calling for greater cooperation between the cartel and his country, the world’s biggest non-Opec oil producer.

“Cooperation with Opec is one of the priorities of Russia,” he said, according to a statement read out at the opening of the meeting.

In production terms, the departure of Indonesia was more than compensated for by the arrival of Angola, which produces 1,85-million barrels a day, and Ecuador, which produces 500 000.

A statement said Angola would hold the Opec presidency in 2009. The departure and arrivals bring Opec’s membership to 12 nations.

The next meeting will be in Oran, Algeria, on December 17. — AFP

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