Oil ministers agree to cut production as the global economic slowdown slashes demand for energy.
Opec cuts output by 1.5m barrels
VIENNA // Opec slashed production quotas for its members by an unexpectedly large 1.5 million barrels per day (bpd), effective November 1, and called for co-operation from non-Opec oil producers in curbing excess crude supply. Following an emergency meeting of the 13-nation oil producer group earlier today, Chakib Khelil, the Opec president, said Opec projects global oil-demand growth of 400,000 bpd this year and 700,000 bpd in 2009 - a further downward revision from earlier forecasts. Non-Opec oil supply is expected to increase by about one million bpd next year, he added, "so you can see why Opec is taking care of the excess supply that is not finding a market right now". "There are countries that are not finding a market. There are companies that are unable to pay for oil," Mr Khelil continued, blaming this year's oil-price turmoil on the world financial crisis and weakening economies, rather than fundamentals of oil supply and demand. "If companies cannot get letters of credit from the banks, they are not going to be able even to buy the crude." The Opec president said any increase in oil prices resulting from Opec production cuts would have "no impact" on inflation or economic growth. He predicted the quota reductions would help stock markets to rally. The group also decided today to publish the amounts by which individual members have agreed to cut output, in a move to increase transparency over compliance with the new production quotas. The largest individual cuts include 466,000 bpd for Saudi Arabia, 199,000 bpd for Iran, 134,000 bpd for the UAE, 132,000 bpd for Kuwait, 129,000 bpd for Venezuela and 113,000 bpd for Nigeria. Mr Khelil said he was "very confident" that Opec members would abide by their agreements to pump less crude. "What choice do they have? I don't think they have a choice, so they will make the cuts," he said. The UAE's energy minister Mohammed bin Dhaen al Hamili called the decision "realistic and positive". "The effect of the decision will soon be seen in the market", he added. On his part, Kuwaiti Oil Minister Mohammed Al Aleem , reiterated the production reduction is realistic and acceptable, adding that the effect of reduction on the market will be evaluated at Algeria meeting in December. Opec could make a decision on further oil production cuts either at its next regularly scheduled meeting in December or earlier, at another extraordinary meeting, if market conditions warrant such a gathering, Mr Khelil said, echoing comments he made last week. According to news reports, most analysts were expecting the group to cut production quotas by one million bpd at today's meeting. However, a sharp drop in oil prices in the two days preceding the gathering may have persuaded members to take more drastic action. The White House on Friday denounced what it called OPEC's "anti-market" decision to cut petroleum production and underlined that high oil prices were a drag on the global economy. "It has always been our view that the value of commodities, including oil, should be determined in open, competitive markets, and not by these kinds of anti-market production decisions," said the White House spokesman Tony Fratto. The British prime minister Gordon Brown also said he was "disappointed" by the decision. His spokesman said: "Opec needs to consider the impact that the decision will have on the world economy. "The current economic crisis affects us all and we should all take responsibility not to undermine efforts that have been made to stabilise the economy." Today's decision on quotas reduces the maximum crude volume that Opec expects its members, excluding Iraq and Indonesia, to pump from 28.8m bpd to 27.3m bpd. Iraq is currently exempt from Opec quotas due to its need for extensive rebuilding of its oil sector following decades of war. Indonesia, which is now a net oil importer, will leave Opec at the end of the year. In its October monthly report, Opec estimated the group's actual output, excluding Iraq and Indonesia, at 29.1m bpd. It forecast a 600,000 bpd increase in global oil demand this year, and a further 800,000 bpd increase in 2009. *with WAM / AFP