Business | Oil & Gas
Opec asks members to cut production
Opec, whose members supply more than 40 per cent of the world's oil, urged members to cut production to comply with output quotas after prices fell to a five-month low.
- Bloomberg
- Published: 23:39 September 10, 2008
- Image Credit: Bloomberg News
- Pipes lead from Kuwait Petroleum's Mina Al Ahmadi refinery to the south pier loading area. Opec President Chakib Khelil said the group pumped 520,000 barrels per day above its quota in July.
Vienna: Opec, whose members supply more than 40 per cent of the world's oil, urged members to cut production to comply with output quotas after prices fell to a five-month low.
Ministers from the Organisation of Petroleum Exporting Countries (Opec) agreed at a meeting in Vienna to a total production limit for 11 members of 28.8 million barrels per day (bpd), unchanged from previous targets.
Opec President Chakib Khelil said the group pumped 520,000 barrels per day above its quota in July.
Iran and Venezuela were among members that urged Opec to take action to support prices that have slid more than 30 per cent from July's record as slower global economic growth curbs demand.
Brent, a benchmark to price two-thirds of the world's crude oil, fell below $100 a barrel in London for the first time in five months on Tuesday.
"Saudi Arabia probably doesn't want a repeat of end-2006 to early-2007 situation when inventories built too much and the market crashed,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp in Tokyo.
"Since Saudi [Arabia] and a few others were producing above quota, it might mean some reduction in supply.''
Market reaction
Oil prices rallied after Opec's announcement, rising as much as 1.6 per cent to $104.82 in electronic trading on the New York Mercantile Exchange. Crude for October delivery traded at $104.10 a barrel at 3:52pm Singapore time.
Opec's quota was adjusted after Indonesia withdrew from the group. The target, set in September 2007, had been 29.673 million barrels per day including Indonesia's production target of 865,000 barrels per day, according to Bloomberg data.
Oil rose to a record $147.27 a barrel in July. Most analysts polled by Bloomberg had expected the group to keep production quotas unchanged and production near record levels.
Airlines, including Canada's Zoom Airlines and Oasis Hong Kong Airlines, went out of business and many cut back on routes as oil prices surged to records and inflation accelerated, prompting people to drive less, lowering demand for gasoline.
The global airline industry may report combined losses of about $5.2 billion this year because of higher fuel bills, the International Air Transport Association said on September 3.
The global economy may slow to about 3 per cent in late 2008 from 5 per cent in the previous year before re-accelerating toward 4 per cent in 2009, said John Lipsky, first deputy managing director of the Washington-based International Monetary Fund on Tuesday.
The global economy is cooling after the US housing slump sparked a lending squeeze while a surge in food and oil prices eroded the spending power of companies and consumers.
Opec's decision is "definitely a defensive measure to keep prices above $100,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy. "They don't want to see us go back to $140 or $150 but they want us over $100. It's a bit of a shock to the market and that's why we're up.''
Extra supply
Opec members have increased production this year as Saudi Arabia, the world's largest producer, sold more barrels to balance shortfalls elsewhere and quench the developing world's growing thirst for crude. That hass taken output above the group's agreed targets.
"Since the market is oversupplied, the conference agreed to abide by September 2007 production allocation [adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq] totalling 28.8 million barrels per day,'' Opec's communique said. "Levels with which members committed to strictly comply.''
"We should do what we can to keep prices at the level of around $100 a barrel,'' Venezuelan Oil Minister Rafael Ramirez told reporters at the open session of the meeting on Tuesday. "We are concerned about the drop of demand by the end of the year.''
Most of the increase in Opec production in the past few months has come from Saudi Arabia, which pledged to raise output by 500,000 barrels per day through June and July to calm prices.
The Gulf country hosted an emergency meeting of global oil producers and consumers in Jeddah in June to discuss how to stabilise markets.
The market is "well supplied'' and "the market is in a very healthy position,'' Saudi Arabian Oil Minister Ali Al Naimi, who sets policy for the world's largest oil producer, told reporters before ministers started closed-door talks at Opec's Vienna headquarters.
The opinion of Saudi Arabia, Opec's biggest and most influential producer, differed from that of Iran and Venezuela, who wanted production to be trimmed to official quota levels to prevent prices moving decisively below $100 a barrel as they said the market is oversupplied.
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