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OPEC nears production cut
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December 27, 2001: 11:36 a.m. ET
Saudi Arabia expects OPEC to cut output by 1.5M bpd to boost oil prices.
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LONDON (CNN) - OPEC plans to cut its output of oil by 1.5 million barrels per day, Saudi Arabia's oil minister said Thursday, in an effort to prop up sagging prices.
The Organization of the Petroleum Exporting Countries is meeting in an emergency session Friday in Cairo to sanction a cut in production. Saudi Arabian Oil Minister Ali al-Naimi said he saw a consensus among OPEC ministers to cut production by 1.5 million barrels per day, beginning Jan. 1.
An anonymous OPEC official told the Associated Press a production cut was certain and that Friday's meeting would simply be to discuss ways to ensure compliance with the new target. Other ministers were quoted by wire services Thursday as supporting the cut.
Oil prices have plunged by a third from a peak of $29.84 a barrel in February as a global economic slowdown dented demand. The events of Sept. 11 exacerbated the decline and plunged Japan and the United States into recession.
In anticipation of the cut, Brent crude for February delivery rose $1.11, or more than 5 percent, to $20.46 in afternoon trading on London's International Petroleum Exchange on Thursday. Trading was closed on Wednesday.
In Thursday trading on NYMEX, light crude futures fell 54 cents to $20.73, as traders took profits after futures closed at a six-week high of $21.27 a barrel on Wednesday - a gain of $1.65, or 8.4 percent, on the day.
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It is certain that [non-OPEC producers] will carry out their pledges and that OPEC will comply with the cuts.
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Ali al-Naimi,
Saudi oil minister |
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OPEC, which pumps about a third of the world's oil, has said its move to slash output will be contingent on non-OPEC oil producers cutting their exports. Russia, Norway, Mexico, Oman and Angola have offered to cut by a combined total of 462,500 bpd.
Iran Oil Minister Bijan Zanganeh warned OPEC could cut only 1.3 million bpd instead of 1.5 million bpd, because OPEC has in hand pledges for cuts of only 462,500 bdp for six months, rather than the 500,000 OPEC sought. Naimi and other ministers dismissed this idea on Wednesday.
"It is certain that they will carry out their pledges and that OPEC will comply with the cuts," Naimi said, adding that he was also confident that OPEC countries would stick to reduced output commitments.
He said OPEC and other producers would impose supply curbs, which will total nearly 2 million bpd, to lift oil prices to a range of $20 to $25 a barrel. Naimi added it would be difficult in the current economic slowdown to lift prices back into OPEC's original target range of $22 to $28 a barrel.
Qatari Oil Minister Abdullah al-Attiyah said he would be content with $20 to $22 for the OPEC basket.
"Twenty-five dollars is not a reasonable price now because we have to support the international economy," he said.
High oil prices were partly responsible for the global economic slowdown in 2001, which led to falling demand for oil. Though higher prices could dampen economic recovery, analysts were divided about whether or not the production cuts would really take place.
"The doubters will hold sway for a while and concerns about compliance will prevent a big price rise," said George Beranek of Washington's Petroleum Finance Corp.
The latest data puts OPEC compliance with this year's earlier cuts at a little more than 80 percent. OPEC in November pumped 23.8 million bpd, or 600,000 bpd in excess of existing limits.
The latest reductions are likely to be imposed for six months, although OPEC will review policy at a mid-March meeting. 
- from staff and wire reports
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