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OPEC oil ministers agreed Wednesday to curb overproduction by more than 500,000 barrels a day, in a compromise meant to avoid new turmoil in crude markets while seeking to prevent prices from falling too far.
The move reflected OPEC efforts to cover all bases in an oil market in which prices spiked to a new record just short of $150 US a barrel in July, only to drop nearly 30 per cent off those peaks in subsequent months.
Oil prices lost more ground Tuesday ahead of the OPEC decision. Benchmark crude for October delivery fell $3.08 to settle at $103.26 on the New York Mercantile Exchange, the lowest settlement price since April 1. The contract rose 11 cents to settle at $106.34 in volatile trading Monday.
In aftermarket trading Tuesday, prices tumbled more than $4 a barrel to a new five-month low of $101.74, within striking distance of the psychologically important $100 threshold, a level first reached on Feb. 19.
A statement by the Organization of Petroleum Exporting Countries issued after oil ministers ended their meeting early Wednesday said the organization had agreed to produce 28.8 million barrels a day.
OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in overproduction.
Saudi Arabia alone accounts for more than that amount of output over its official quota â all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.
OPEC members regularly churn out oil above the organization's overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.
Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark â the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.
While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and exclude Iraq, as well as Indonesia which used the Vienna meeting to announce it was suspending its full membership.
The statement noted that "prices had dropped significantly in recent weeks driven by a weakening world economyâ¦with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions." And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."
'Good reasons ⦠for prices to turn toward the upside'
But analysts said several factors could stem any further slide in prices over the next few months.
"There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that â after a few near misses in recent weeks â further storms could savage oil installations in the Gulf of Mexico.
He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.
Others said that OPEC's concerns were well founded.
Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are [also] affected, we will see them do a cut" in December.
Oil demand from China's and India's booming economies have helped drive up prices.
Ehsan ul-Haq, head of research at JBC Energy, also said that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world's appetite for crude by year's end.
Khelil said the request to curb overproduction was effective immediately, with a 40-day window for it to take effect. He suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil [market] stability."
At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.
Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 per cent. Still, prices remain close to 14 per cent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.
The Associated Press
The move reflected OPEC efforts to cover all bases in an oil market in which prices spiked to a new record just short of $150 US a barrel in July, only to drop nearly 30 per cent off those peaks in subsequent months.
Oil prices lost more ground Tuesday ahead of the OPEC decision. Benchmark crude for October delivery fell $3.08 to settle at $103.26 on the New York Mercantile Exchange, the lowest settlement price since April 1. The contract rose 11 cents to settle at $106.34 in volatile trading Monday.
In aftermarket trading Tuesday, prices tumbled more than $4 a barrel to a new five-month low of $101.74, within striking distance of the psychologically important $100 threshold, a level first reached on Feb. 19.
A statement by the Organization of Petroleum Exporting Countries issued after oil ministers ended their meeting early Wednesday said the organization had agreed to produce 28.8 million barrels a day.
OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in overproduction.
Saudi Arabia alone accounts for more than that amount of output over its official quota â all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.
OPEC members regularly churn out oil above the organization's overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.
Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark â the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.
While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and exclude Iraq, as well as Indonesia which used the Vienna meeting to announce it was suspending its full membership.
The statement noted that "prices had dropped significantly in recent weeks driven by a weakening world economyâ¦with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions." And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."
'Good reasons ⦠for prices to turn toward the upside'
But analysts said several factors could stem any further slide in prices over the next few months.
"There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that â after a few near misses in recent weeks â further storms could savage oil installations in the Gulf of Mexico.
He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.
Others said that OPEC's concerns were well founded.
Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are [also] affected, we will see them do a cut" in December.
Oil demand from China's and India's booming economies have helped drive up prices.
Ehsan ul-Haq, head of research at JBC Energy, also said that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world's appetite for crude by year's end.
Khelil said the request to curb overproduction was effective immediately, with a 40-day window for it to take effect. He suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil [market] stability."
At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.
Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 per cent. Still, prices remain close to 14 per cent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.
The Associated Press
