Opec cuts oil output amid falling prices
OPEC agreed to reduce oil production in an attempt to stop falling prices. As the world economy enters into a recession, oil demand has been dropping in the last week. As OPEC only controls 40% of the global oil market, cooperation from non members becomes critical in its strategy to curb further price drops.
The Organisation of the Petroleum Exporting Countries (Opec) has agreed to cut its oil output by 1.5 million barrels per day from the start of November. Ali al-Naimi, the Saudi Arabian oil minister, confirmed the move on Friday, adding that the oil group will now wait to see the effect of its decision on the oil market before considering any further possible cuts. Opec's decision, announced after an emergency meeting in Vienna, Austria, is an attempt to shore up sagging global prices. Crude is selling for 50 per cent less than this year's historic heights because the worldwide economic crisis has reduced demand. "The decision was straightforward," al-Naimi said. "Don't put Opec with the financial crisis," he said, adding that record high oil prices in July this year were the result of speculative trade on futures markets. "We're prepared to meet more often to stabilise the market," he said, adding Opec would do "whatever it takes".
Slippery oil futures: Opec will meet again in December, when output will likely be closer to 1.8 million barrels.US crude oil futures slid by more than $4 to $63.05 a barrel - a fresh 16-month low - immediately after the cut. Jonah Hull, Al Jazeera's correspondent at the conference in Vienna, said: "Oil prices are very important. It is a major commodity, a major source of energy and oil is the fuel for manufacturing and other industries. "The higher the price of oil, the more expensive these things are and then the more expensive these things become for consumers. "So the price of oil is critical for us - the consumers. World economies will not welcome the oil hike." Rob Laughlin, a broker MF Global, said: "Already we've seen demand destruction of two million barrels per day. I'm not convinced this cut will be enough to stop the slide. "We need to see what they plan on doing later this year."
New quota: Michael Lewis, a Deutsche Bank analyst, said: "We believe this week will mark the start of a new quota reduction cycle by Opec and it will continue through 2009. "However, we believe production cuts will not rescue the oil price." Dalton Garia, from the Petroleum Institute, told Al Jazeera that the shrinking world economy means that there will be reduced demand for oil. "Furthermore, Opec is in a box. The more oil producing capacity they lay aside the less the risk that there wont be oil there if I need it assuming there is some untoward series of geo-political events where we suddenly need oil to replace supply that's gone down. "So that just means that the price of oil will drop even further." Opec comprises Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Indonesia has suspended membership and will leave the cartel at the end of 2008, while Iraq does not have an output quota because of the country's post-war strife.