OPEC votes to cut actual output by 7 percent
Friday, April 25, 2003
VIENNA, Austria -- Hoping to stabilize weakening crude prices, OPEC members agreed Thursday to cut their current oil output by 2 million barrels a day, or 7 percent.
At the same time, the Organization of Petroleum Exporting Countries took the surprising step of temporarily raising its official output target to 25.4 million barrels, up 900,000 barrels a day from its existing ceiling.
The changes take effect June 1, OPEC President Abdullah bin Hamad Al-Attiyah said.
The group, whose 11 members pump about a third of the world's oil, announced its decision at a chaotic news conference at its headquarters that left some energy analysts bewildered.
The announcement followed three hours of emergency talks that aimed at preventing a further decline in prices. Crude prices have tumbled from almost $40 a barrel for U.S. crude before the Iraq war to about $25 in recent weeks. OPEC feared more declines if it didn't rein in what it saw as an oversupply just as crude demand reached a seasonal low.
The group based its production cut largely on what it said was sluggish global demand during the second quarter.
The slowdown has been exacerbated by the outbreak of severe acute respiratory syndrome, which Al-Attiyah said has dampened crude demand by 300,000 barrels a day.
OPEC plans to review its decision when it meets again June 11 in Doha, Qatar.
"We feel we may need another cut in June," Al-Attiyah said, adding: "We will watch the market very carefully. "
The market's initial reaction was to shave about a dollar off the price of a barrel of oil, as traders apparently concluded that OPEC was making more crude available than they had expected. June contracts of U.S. light, sweet crude fell as low as $25.61 a barrel in New York, but ended down 1 cent at $26.64 a barrel. North Sea Brent crude for June delivery settled up 4 cents at $24.30 a barrel in London.
Al-Attiyah argued that OPEC could not begin cutting production in May because member countries had already committed fixed quantities of oil to their customers.
Several OPEC members had boosted their production before the war, hoping to head off a supply shortage. The rapid end of the conflict has left them facing what they see as a surplus of 2 million barrels a day.
"It is important to reduce oversupply," Venezuela's oil minister Rafael Ramirez told reporters before the hastily arranged talks began. "We have to have more discipline, and it is important to take measures and remove that amount from the market."
If not, OPEC wouldn't be able to maintain its price target of $25 a barrel, he said.
Many energy analysts had expected OPEC to agree to curb production. In the end, the group took the unusual decision of slashing its actual production -- which it calculated as 27.4 million barrels a day, including Iraq -- while also raising the nominal ceiling for OPEC's 10 members excluding Iraq. OPEC's current target is 24.5 million barrels a day.
The decision means Saudi Arabia, OPEC's most powerful member, would reduce its production by 1 million barrels a day, Al-Attiyah said.
OPEC representatives called Thursday's meeting to reassess the group's output levels as oil began flowing again in Iraq for the first time since the war.
OPEC is ready to welcome Iraq back as a participating member, Al-Attiyah said. Iraq hasn't taken part in the group's production agreements since April 1991, after the first Gulf War.
"I hope Iraq comes back tomorrow," he said, adding later: "We will accommodate Iraq at the right time."
To keep control of oil production, OPEC will eventually need to reintegrate Iraq's future output into the group's overall production. This could be a divisive project that would probably require other members to reduce their own shares of OPEC's output.