OPEC to Cut Output by 20% in Sept.
OPEC today announced an agreement to reduce oil production by almost 4 million barrels a day in September and October to solve the oil glut and raise prices.
Prices immediately jumped by more than $3 for Britain’s North Sea Brent crude on the European spot market. On the New York Mercantile Exchange, West Texas intermediate--the key U.S. crude for immediate delivery--shot up by almost $2 barrel.
If the 13-member Organization of Petroleum Exporting Countries can make its production limit of 16 million barrels stick, U.S. consumers face higher prices for both gasoline--as much as 14 cents a gallon--and home heating oil.
Price Fell From $28 to $10
Before the agreement of the 20% production cut, world oil prices had fallen from an average of $28 a barrel in December to around $10.
The cartel cautioned that its efforts to defend prices are contingent on similar production cuts by non-OPEC countries. It also called the OPEC cutback a “temporary measure” and said member states will pursue their campaign for “a fair market share.”
OPEC ministers announced their interim agreement, which excluded OPEC member Iraq, at the end of a nine-day conference. Ministers agreed to meet again in the fall to consider production levels after October. Delegation sources said the meeting was provisionally set for Oct. 6, again in Geneva.
‘Interim Action’
The communique said in part:
“It was thought that an interim action should be taken as a means to strengthen the oil price structure and move prices up to reasonable levels by temporarily cutting OPEC’s production by an amount which is necessary to remove the surplus in the oil market.”
Current OPEC output is estimated at around 20.5 million barrels a day, including some 1.9 million barrels pumped by Iraq.
The 16 million-barrel ceiling includes Iraq’s former quota of 1.2 million barrels a day, but since Iraq currently is pumping 1.9 million barrels a day to pay for its war against fellow OPEC member Iran, the cartel’s new ceiling will amount to 16.7 million barrels a day.
Will Pursue ‘Fair Share’
The communique declared the temporary cutback “should bear no prejudice to the discussion in the conference concerning new national quotas for its members and OPEC’s appropriate and rightful total production.”
“While OPEC will continue its endeavor to secure stability in the oil market, it will also pursue its efforts to secure for itself a fair market share consistent with the revenue needed for economic and social development of member countries,” it said.
OPEC then went on to demand cooperation from non-member producers, saying: “Failing such contribution, OPEC will not be committed to defending the price structure alone.”
The communique said ministers “also agreed on a system for controlling member countries’ production to ensure compliance” with their decisions.
Watchdog Committee
Delegation officials said a monitoring or watchdog committee will be chaired by Nigerian Oil Minister and OPEC President Rilwanu Lukman.
