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OPEC may cut quotas
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July 23, 2001: 7:00 a.m. ET
Oil cartel may hold emergency meeting in August to cut quotas to prop up price
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LONDON (CNN) - OPEC is considering holding an emergency meeting in early August where it is likely to slash oil production by at least 1 million barrels a day.
The move could affect fuel prices at the petrol pumps and further damage a fragile world economy, as it comes at a crucial time for oil refineries which build up stock ahead of the northern hemisphere's winter period.
OPEC members – Algeria, Iraq, Libya, Kuwait, Nigeria, Qatar, Indonesia, Saudi Arabia, Iran, United Arab Emirates and Venezuela – need to defend the price of crude as it represents a major source of revenue for the counties.
Ali Rodriguez, the Secretary-General of the Organization of Petroleum Exporting Countries told Reuters on Monday that all ministers he had contacted saw the need to reduce supply for the third time this year.
"At the moment we are in consultations and probably we will meet here (Vienna) at the beginning of August," Rodriguez said.
The 11-member oil cartel is determined to push the price of crude back towards the $25 a barrel price for a basket of crudes. OPEC's reference basket stood at $22.74 a barrel on Thursday.
Brent crude futures for September delivery rose 43 cents to $25.06 on London's International Petroleum Exchange.
The cartel is concerned a fall in demand will see prices plummet. It was badly caught out by the Asian financial crisis in December 1998, when oil hit a low of $9.95 a barrel on December 11, 1998. A year earlier OPEC had raised output to meet demand from booming economies in the region.
OPEC in early 1999 agreed to restrict production, resulting in a tripling in the price of crude over the following year.
Normally, the cartel meets just twice a year, in March and September, but the rapid switches in the market have forced it into a series of extraordinary meetings to discuss the state of the market.
The latest downward pressure on oil prices came about after demand in the U.S., the world's biggest consumer of crude, started to decline leaving a build up of stocks at refineries.
Any cut would be OPEC's third this year -- two previous reductions took a combined 2.5 million barrels per day out of world supplies. Oil prices have lost some $5 a barrel since peaks near $30 in mid-June.
"OPEC has shown itself to be market-savvy by recognizing that waiting for the price band mechanism to kick-in could cause a slump well below $22 a barrel," Lawrence Eagles, an oil analyst at GNI, wrote in a note to investors.
"However in doing so it has also shown itself not to be a bastion of stability it had claimed, but a hawkish price-rigging organization," Eagles added.
"OPEC stuck to the price mechanism for guidance when prices rose too high, even though it proved ineffective, but when they threatened to fall to the lower end of the $22-$28 barrel range the mechanism went out of the window," he said.
Under its price mechanism adopted in March last year, if the average price of OPEC's benchmark basket of different oil blends remains above $28 for 20 business days an increase automatically follows. OPEC can also reduce output by 500,000 barrels a day if oil prices stay below $22 a barrel for 20 days.
The Saudi Arabian Oil Minister Ali al-Naimi said on Friday " we are expecting to cut production, the question is how much. The reduction is expected to be between 1-1.5 million barrels per day." 
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