Oil Rises as Saudis Back Cut by OPEC

Oil prices rose above $58 a barrel Thursday after Saudi Arabia signaled its support for an OPEC production cut designed to halt a precipitous fall in prices and send a message to a skeptical world market.

Ministers from the Organization of the Petroleum Exporting Countries, meeting in Doha, Qatar, agreed later in the day to a reduction of 1.2 million barrels a day. The cut, amounting to 4.3% of OPEC’s September production, was deeper than anticipated and the biggest since January 2002. It trims OPEC’s output to 26.3 million barrels a day beginning Nov. 1.

The reduction would come from actual production levels rather than official quotas, which are higher, United Arab Emirates Oil Minister Mohamed bin Dhaen al Hamli said at a news conference.

The move follows a decline in oil prices since a mid-July peak above $78 a barrel and would be the first cut since December 2004, when oil traded slightly above $40 a barrel.

“The credibility of OPEC is at stake,” Algerian Energy and Mines Minister Chakib Khelil said before the meeting.

In a statement after the meeting, OPEC expressed concern that oil supplies were outstripping demand. “The oversupply situation and imbalance in supply/demand fundamentals have destabilized the market,” it said.

Oil prices have slumped because of concerns about slower economic growth, rising inventories and a weaker-than-anticipated hurricane season, allowing Gulf of Mexico producers to operate without interruption.

In New York futures trading Thursday, light sweet crude for November delivery settled up 85 cents at $58.50 a barrel.

The silence in public of OPEC’s most influential member, leading exporter Saudi Arabia, had led some analysts and investors to speculate that the kingdom opposed a plan to cut output.

Saudi Oil Minister Ali Ibrahim Naimi laid those doubts to rest when he arrived in Doha on Thursday, saying he stood fully behind the planned reduction and suggesting a further cut of 500,000 barrels a day could follow when OPEC meets in Nigeria in December.

“OPEC sees itself being challenged by financial speculators and will respond aggressively to make clear to the market its price objectives and willingness to cut volumes to achieve these objectives,” said Gary Ross, chief executive of PIRA Energy consultancy.

In the run-up to the talks, there had been much debate about where to apply the knife -- to nominal quotas or to actual output. OPEC’s official ceiling has been at 28 million barrels a day since July 2005, but actual production has wavered by 500,000 barrels on either side of the quota.

Most members of OPEC, which pumps more than a third of the world’s oil, said a reduction must come from real output to be credible, effectively scrapping OPEC’s quota system.

Reuters and the Associated Press were used in compiling this report.