OPEC surprises with its output cut decision
OPEC agreed on Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.
By Agencies |
VIENNA : Oil ministers of Organisation of Petroleum Exporting Countries (Opec) agreed on Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.
The news sent oil prices rising. Light, sweet crude for October rose 97 cents to $104.23 a barrel in electronic trading on the New York Mercantile Exchange. But, subsequently, prices fell to $101 on growing concerns over economic slowdown.
The Opec announcement reflected the organisation���s efforts to cover all bases in an oil market that saw prices spike to a record high ��� just short of $150 a barrel in July ��� only to shed nearly 30% off those peaks in subsequent months.
Oil prices had lost more ground on Tuesday ahead of the decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1. A statement issued by Opec after oil ministers ended their meeting early on Wednesday, said the organisation agreed to produce 28.8 million barrels a day.
Opec president Chakib Khelil said quota in effect meant that the member countries had agreed to cut back 520,000 barrels a day in production over the established quota.
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Saudi Arabia alone accounts for more than that amount of output over its official quota, all members of the 13-nation Opec have such formal production limits allotted to them except violence-torn Iraq. The decision could have the psychological effect of steadying eroding prices at or above the $100 mark, the red line for many Opec nations concerned about their rapid loss of revenue in recent months.
While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and exclude Iraq, as well as Indonesia, which used the Vienna meet to announce it was suspending its full membership.
Saudi Arabia was widely believed to have been leaning toward maintaining the status quo heading into this week���s meeting ��� a view shared by its Arab Gulf neighbours.
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Wednesday���s compromise, while promising to tighten up global supplies, does not amount to an official cutback by the cartel. ���At the end of the day, all they���re saying is ���we���ve been cheating for the past year���,��� said analyst and trader Stephen Schork. ���I wouldn���t say the Saudis backed down. I���d say it was a respectful nod to the other members of the group.��� The impact of Wednesday���s compromise remains to be seen.
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Oil analyst Cornelia Meyer said she expected Opec to ���wait and see what is happening to the global economy and depending on whether China and India are (also) affected, we will see them do a cut��� in December. Oil demand from China and India���s booming economies has helped fuel oil demand and drive up prices. Download
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