OPEC Votes to Cut Output by 3.5%

OPEC members agreed Wednesday to make a preemptive cut in their production target for crude oil in an effort to bolster prices before an expected decrease in demand early next year.

The Organization of the Petroleum Exporting Countries voted to lower its output ceiling by 900,000 barrels a day to 24.5 million barrels starting in November.

The 3.5% cut startled energy traders; oil futures jumped $1.11, or 4.1%, to $28.24 a barrel in New York on Wednesday.

One analyst said he expected the action to keep gasoline and heating oil prices that consumers pay near current levels. OPEC pumps about a third of the world’s crude.

The surprise decision came after a meeting that also saw Iraq’s return to OPEC for the first time since the ouster of Saddam Hussein.

Although the market is currently “well supplied,” OPEC is taking preventive action now to try to keep prices stable before an expected dip in seasonal demand in the first quarter of 2004, the group’s spokesman Omar Ibrahim told a news conference at OPEC’s Vienna headquarters.

At current output levels, OPEC predicts that the daily supply of crude will outstrip demand by 2.5 million barrels by April. Iranian Oil Minister Bijan Namdar Zanganeh, speaking earlier, called the cut a possible “first step” and did not rule out an additional reduction later in the year.

OPEC wants independent, non-OPEC producers such as Russia to take “concrete measures” to restrain their own output, Ibrahim said, although the organization is not making its cut conditional on their cooperation as it did in December 2001.

OPEC had been widely expected to keep its daily production ceiling at 25.4 million barrels. However, a recent slide in prices and OPEC’s expectations of a surge in oil inventories among major importing countries have compounded its fears about a further drop in prices.

Iraq’s gradual return to the market also was a factor. Zanganeh noted that a cut of 900,000 barrels would return OPEC’s output target to what it was until April, when the war in Iraq removed that country temporarily from the market.

Iraq now produces about 1.8 million barrels of oil a day -- 700,000 barrels less than on the eve of the war in that country. It exports some 900,000 barrels a day, the Iraqi oil minister said.