OPEC cuts back on oil production

Oil cartel OPEC agreed today to scale back production in a bid to defend high prices and protect revenues.

At a meeting in Cairo, Saudi oil minister Ali Naimi said the total reduction of one million barrels a day will be implemented from the beginning of January.

OPEC also agreed to meet again at the end of that month to review the impact of the cutback on prices, which have fallen sharply recently since hitting a new record in October.

Mild weather in the United States has led to a stronger than expected build-up in oil stocks across the Atlantic and Mr Al Naimi suggested prices may continue to fall.

“We have done everything to moderate the price,” the Saudi minister said, alluding to overproduction in recent months. “It is moderating and it will probably moderate more.”

Today’s decision means output will be scaled back to OPEC’s quota of 27 million barrels a day.

Despite some pressure by other OPEC nations to raise the bar on Opec’s price band – now at between $22 to $28 – Mr Al Naimi said the group decided to leave that marker unchanged for now.

But he suggested the 11-nation oil cartel could decide on further cutbacks even before crude prices fall below those levels.

“We will defend (market) stability by going up or going down,” he said.

The cut in production had been widely expected after Opec oil ministers publicly offered their support to such a move.

Kuwait’s Sheikh Ahmad Fahad Al-Ahmad Al-Sabah had estimated Opec’s overproduction at about 1.7 million barrels a day, although other ministers have put it at 1.1 million barrels.

The OPEC meeting highlighted members’ concern about a possible oil glut in the second quarter of 2005 and prices that are now a quarter below their peaks above $55 a barrel.

With the US dollar at record lows against major currencies such as the euro, OPEC nations were worried about the impact on their revenues from falling prices.

However, consuming nations have called on OPEC to keep output high to underpin economic recovery.

OPEC’s production total reaches more than 30 million barrels a day once Iraq is included. Iraq, which produces about 2 million barrels a day, has been exempted from quotas to enable it to rebuild its economy.