Members of OPEC Agree to Keep Output Within Quotas
Members of the Organization of Petroleum Exporting Countries agreed at an emergency meeting Thursday to stop producing oil above their previously agreed quotas, hoping to end the oversupply that has driven prices down 25% this year.
But the agreement failed to stabilize prices on world markets. Crude futures fell in New York amid views that OPEC’s pact would not offset current oversupply.
On the New York Mercantile Exchange, spot crude oil lost 69 cents to close at $18.10 a barrel.
“Nobody believes the agreement will help the near-term supply glut. There are still fears that there’s a lot of crude out there and even if producers stick to quotas, it would not be enough to hold prices,” said Stephen Platt, analyst with Dean Witter Reynolds.
Nauman Barakat of Shearson Lehman Hutton in New York called it “smoke and mirrors” unless the Persian Gulf states quickly showed the market that they meant business.
OPEC said major oil producers have agreed to cut collective daily oil output by 1.4 million barrels to a previously agreed upon level of about 22 million.
Crude prices have tumbled this year in a scramble for revenue and market share caused by individual members exceeding OPEC output quotas.
OPEC President Sadek Boussena of Algeria said the new deal was reached in intensive overnight negotiations, after the main quota offenders--Saudi Arabia, Kuwait and the United Arab Emirates--agreed to trim production to take slack out of the market.
The 13 OPEC ministers began their emergency talks Wednesday.
Boussena said the UAE, which has ignored its quota because it deemed it unfair, would cut its own output by 200,000 barrels to 1.9 million barrels a day.
Oil traders at first marked up prices by about 15 cents a barrel on hearing news that OPEC had reached a production agreement.
But when they realized that the accord would reduce OPEC output to only around 22 million barrels per day, they quickly wiped out the gains and marked prices down.
OPEC’s declared price target is $18 a barrel, based on a basket of international crudes.
Boussena said all OPEC members exceeding quotas would cut production to levels agreed upon in an earlier pact.
Even countries pumping within their OPEC-set limits would trim production to lift prices, Boussena said. He mentioned Iraq, Iran, Indonesia, Qatar and Algeria.
Saudi Arabian oil minister Hisham Nazir told reporters, “We are going back to our quota. . . . Everybody is sincere about adhering to the quota. I am very happy.”
The world’s biggest exporter, Saudi Arabia, promised a substantial daily cut of 430,000 barrels, delegates said.
