OPEC Agrees to Trim Production
OPEC on Thursday agreed to a cut in oil production to support prices already buoyed by the threat of war in the Middle East.
The Organization of the Petroleum Exporting Countries also tried to restore flagging market confidence in its discredited system of quota limits by raising official output targets.
The cartel, meeting here, voted to increase members’ output quotas by 1.3 million barrels a day while reducing overall production to the level of the new quotas, Algerian Oil Minister Chakib Khelil said.
Ministers said they were aiming for a drop in actual production in the first half of next year, to avoid a potential plunge in prices after winter heating demand ebbs in the Northern hemisphere.
The goal, they said, was to keep their benchmark oil price at $22 to $28 a barrel.
“All [members] said very strongly they will comply,” said Qatar’s oil minister, Abdullah al Attiyah.
OPEC acknowledges that chronic quota busting had pushed recent output well above its old supply target.
The deal Thursday, covering the first quarter of 2003, raised the daily target from 21.7 million barrels to 23 million. If members comply, it would amount to a cut of more than 5% from estimated production of 24.3 million barrels a day in November.
“The mathematics make sense,” said energy analyst Michael Rothman of Merrill Lynch & Co. “They need to deal with the reduced call on their oil after winter.”
The decision pushed crude oil prices to a seven-week high in New York. Near-term futures rose 61 cents to $28.01 a barrel. The price is up 41% this year, from $19.84 at the end of 2001.
But OPEC members say much of the price rise is tied to market jitters about a Mideast war and, lately, to concerns about civil strife in Venezuela, a major producer. The New York futures price is down from a high of $30.83 in early October.
The deal could mean trouble for world economies struggling to reignite growth, some analysts said.
“The world economy is bumping along the bottom, and OPEC is looking at its own domestic finances,” said Raad Alkadiri of Petroleum Finance Corp. in Washington.
The decision met with some skepticism because observers wonder how far OPEC producers will go to turn down the taps and abide by new quotas.
“Saudi Arabia is the architect of this deal and clearly will cut, but will they get the others to comply?” said consultant Gary Ross of PIRA Energy in New York.
Higher oil prices have encouraged rival nations to invest in new fields, taking market share from OPEC. Non-OPEC countries next year may increase output by 1.3 million barrels a day, the International Energy Agency estimates, outstripping growth in demand and leaving no room for additional OPEC oil.
OPEC supplies about one-third of the world’s oil.
