OPEC Agrees to Curtail Output, Trigger Hikes

OPEC ministers agreed today to cut current crude production by 1.45 million barrels a day in an effort to push oil prices back up to $18 a barrel, the organization’s president said.

All 13 members of the cartel will contribute to the reduction, OPEC President Sadek Boussena said at a news conference.

However, oil prices dropped following the cartel’s announcement, in apparent skepticism that much had been accomplished. The June contract for West Texas Intermediate, the benchmark U.S. crude, was down 35 cents at $18.33 a barrel on the New York Mercantile Exchange in late morning trading.

The countries that have been pumping above their quotas agreed to return to their ceilings, Boussena said without identifying the violators. The United Arab Emirates, which analysts have said is one chronic overproducer, agreed to cut its output by 200,000 barrels a day, Boussena said.

The agreement, reached on the second day of an emergency session, will be in effect until the end of July, Boussena said. The cartel will postpone its midyear session for a month to July 25, when it will decide its output and pricing policy for the rest of the year, he said.

The Organization of Petroleum Exporting Countries pumped 23.5 million barrels a day in April, Boussena said, above the cartel’s official ceiling of 22.1 million barrels.

“For the time being, we decided to have a freeze-time for three months,” said Boussena, who also serves as Algeria’s oil minister.

Although he provide a breakdown of the agreed cutbacks, he noted that “the most would be provided from countries who will go back to their quotas.”

Once production is back in line, Boussena said “OPEC is going to withdraw a big quantity from the market. We hope prices will restore” to $18 a barrel, which was the price members agreed upon last November.

The overproduction has created an oil surplus just when demand traditionally eases off in the second quarter, bringing oil prices well below OPEC’s current minimum reference price of $18 a barrel.

North Sea Brent Blend, the most widely traded international crude oil, was trading at a spot price of $16.65 a barrel in London this afternoon, down about 15 cents from late Wednesday.

The average price of a basket of seven crudes monitored by OPEC stood at $15.37 per 42-gallon barrel last week.