OPEC to cut oil output by 1.5 million b/d
The Organization of Petroleum Exporting Countries announced a 1.5 million b/d reduction to its oil output targets.
By OGJ editors
HOUSTON, Oct. 24 -- The Organization of Petroleum Exporting Countries announced a 1.5 million b/d reduction to its oil output targets. The cuts, effective Nov. 1, would put total OPEC production at 27.308 million b/d from the 11 member countries that are bound by quotas.
The organization cited declining oil demand resulting from the financial crisis and slowing global economy as the reason behind the cut, maintaining that the market has been oversupplied with crude for some time.
OPEC noted that the recent dramatic oil price collapse may jeopardize existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.
Iraq and outgoing OPEC member Indonesia were not assigned a new production ceiling. The largest cut was assigned to Saudi Arabia, which agreed to reduce output by 466,000 b/d.
The Centre for Global Energy Studies, London, calculates that Saudi Arabia's new quota will be 8.477 million b/d, based on figures released after OPEC's November 2007 meeting. In order to comply with the new quotas, Saudi Arabia will be required to cut its actual production by more than 1 million b/d from an estimated September 2008 level of almost 9.5 million b/d, according to CGES.
Iran will have to cut its actual output by 300,000 b/d from its September level, Kuwait by 200,000 b/d, and the UAE, Algeria, and Libya each by more than 100,000 b/d. Only Angola and Nigeria were producing less than their new quota levels of output in September, CGES said.
CGES believes that OPEC's desire to push oil prices upwards from their current $60-70/bbl level stands in sharp contrast to what the organization was saying just a year ago. In a press release in October 2007, Sec. Gen. Abdalla Salem El-Badri said OPEC was concerned with the escalation in oil prices that pushed the OPEC reference basket to $80/bbl from $70/bbl over the previous month and a half. The press release went on to say that the rising oil prices were largely being driven by market speculators.
"The implication then was that oil prices at $70-80/bbl were not a reflection of market fundamentals and were unhealthily high. Twelve months on and this same level of oil prices must be protected as a floor price, despite the much weaker outlook for the global economy and fears of a global recession," CGES said.