Economic Outlook: Opec's precautionary decision to cut output upsets consumers

When Opec ministers agreed to cut oil production at their scheduled Sep-tember 24 conference in Vienna, big oil consumers expressed their dismay and almost reacted like market speculators. Up to the day of the meeting, almost everybody was expecting Opec to keep production levels without change as oil prices were within the set price band.

The producer's meeting surprised the market and announced a cut of 900,000 barrels per day (bpd), explaining that the decision aimed at preempting a potential contra-seasonal stock-build in the fourth quarter and maintaining prices in the top half of the Opec $22-$28 price band. Furthermore, some of the factors that led Opec to produce more have now been reversed, such as the shortfall of supplies from Iraq, Venezuela and Nigeria.

In its communiqué, Opec said that while the global economy appeared to be improving, demand growth in the fourth quarter was expected to be limited to the usual seasonal increase.