OPEC agrees to cut production 1.5 million b/d
The Organization of Petroleum Exporting Countries agreed in Vienna Wednesday to a 1.5 million b/d cut to their countries' collective output in a bid to keep oil prices at a high level. The reduction, the first from OPEC in 2 years, is scheduled to take effect Feb. 1. Though some OPEC member states were calling for production to be slashed by up to 3 million b/d, the agreed cut was in line with most expectations.
US Energy Sec. Bill Richardson expressed disappointment about the Organization of Petroleum Exporting Countries's agreement Wednesday to a 1.5 million b/d output cut in a bid to keep oil prices at a high level. The reduction, the first from OPEC in 2 years, is scheduled to take effect Feb. 1.
Richardson and European Commission Energy and Transport Commissioner Loyola de Palacio had urged OPEC not to cut output, citing concerns about market volatility and lowered stock levels.
"Nevertheless, we successfully argued against much deeper cuts of 2 million or even 3 million b/d, which would unquestionably have undermined stability in the market and hurt world economic growth," said Richardson.
Though some OPEC member states were calling for production to be slashed up to 3 million b/d, the agreed cut was in line with most expectations.
The Center for Global Energy Studies, London, this week warned such a massive production cut could undermine the rebuilding of world oil inventories and pose a threat the global economy.
CGES also said a reduction of 1.5 million b/d�a figure closer in real terms to 1.3 million b/d because some OPEC members already have curbed production�would question the credibility of the organization's price band mechanism, designed only to be triggered when crude prices drifted outside OPEC's target $22-28/bbl range.
The International Energy Agency, Paris, said it was concerned about the output cut.
�Such unilateral efforts to set oil market prices simply aggravate volatility,� said IEA Executive Director Robert Priddle. He noted that the 10 quota-bound OPEC countries (excluding UN-sanctioned Iraq) have been "slightly underproducing" their previous target figure of 26.7 million b/d, while Iraqi exports, "which have been low, are expected to rise."
Priddle added that the heating oil season�which had been a factor in recent high prices�was "well advanced," and would be over "by the time any action decided today can have an effect."
The production quotas for 10 of OPEC's 11 member stares climbed 3.7 million b/d last year to 26.7 million b/d. Wednesday's cut would lower output to 25.2 million b/d.
Under the plan, Algeria would reduce production 48,000 b/d, Indonesia 78,000, Iran 219,000, Kuwait 120,000, Libya 81,000, Nigeria 123,000, Qatar 39,000, Saudi Arabia /486,000, the United Arab Emirates 132,000, and Venezuela 174,000.
In a statement, OPEC said the agreed quota cuts had been reached "in recognition of the fact that current crude oil supplies far exceed demand, a situation exacerbated by the slowing growth in key economies.
"With the approach of the seasonally lower demand in the second quarter, unchecked production could precipitate a price collapse, serving the short and longer-term economic interests of neither producers nor consumers," the organization said.
Newly appointed OPEC Pres. Chakib Khelil Wednesday emphasized the need for a "durable solution" to the tendency of oil markets to fluctuate since the mid-1990s, given the "central importance" of oil to the world economy.
Khelil told the meeting the price of OPEC's basket of seven crudes averaged $19/bbl in 1997, $12/bbl in 1998, $17/bbl in 1999, $28/bbl in 2000, and $23/bbl to date this year.
"How can industry, trade and commerce function effectively in such a climate in any area of activity, energy or otherwise?" Khelil asked. "Somehow, a durable solution must be found to this boom-or-bust trend."
He said, "It is up to all parties to act toward the common good�OPEC and non-OPEC producers, international organizations and consumers�if the industry is to prosper in the future. This is by no means an easy task, especially for oil-producing, developing countries, whose economies are heavily dependent upon oil revenues."
Khelil said he wanted to send a "message of hope" to oil consumers by assuring them that OPEC was "committed to satisfying consumer needs, and to achieving order and stability in the international oil market, with fair prices for crude and products, and reasonable returns on investment."
He suggested a "united approach" was essential to achieve this aim. He said, "We, producers and consumers, should become more actively associated with making decisions that serve our common interests in the spirit of dialogue, transparency, and a shared vision of the long-term, overcoming national self-interest."