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OPEC agrees to cut output target
VIENNA, Austria -- OPEC will cut its production target by 4 percent, several oil ministers said Wednesday -- a move that could drive prices past the psychologically important threshold of $40 per barrel at a time when U.S. customers are already enduring high gasoline prices.
The big question now is how serious the Organization of Petroleum Exporting Countries will be in complying with its new, lower target of 23.5 million barrels per day. An expected drop in seasonal demand during the April-June quarter and quota-busting by individual members of the group could eventually dampen the effects of the cut, analysts said.
OPEC, which pumps about a third of the world's oil, agreed to reduce its output ceiling by 1 million barrels per day, or 4 percent.
A recent surge in oil prices had led some of the group's 11 members to suggest postponing the cut, but OPEC's most influential oil minister, Saudi Arabia's Ali Naimi, prevailed in his effort to press ahead.
Kuwaiti Oil Minister Ahmad Fahad Al-Ahmad Al-Sabah had earlier suggested delaying the cut but was among those who confirmed the group's decision to trim its target to 23.5 million barrels per day starting today. Ministers from Algeria, Nigeria, Libya and Qatar also confirmed the agreement, which the representatives reached in private talks ahead of a formal meeting at OPEC's headquarters in Vienna.
OPEC had agreed last month in Algiers, Algeria, to make the cut today, but recent discomfort with rising prices in the United States and other importing countries had led some OPEC members to reconsider.
OPEC was forced to balance consumers' desire for lower oil prices with its own fears that swelling inventories and a seasonal lull in springtime demand could cause prices to plunge.
Most OPEC members are taking advantage of the current high prices by pumping as much oil as they can. Excluding Iraq, which doesn't participate in the group's quota agreements, OPEC is already exceeding its target by an estimated 1.5 million barrels.
If individual members have the discipline to reduce their actual output in line with their lower target, crude prices now could reach $40 per barrel, said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.
Gasoline prices were also likely to rise, said Kevin Norrish, head of commodities research at Barclays Capital in London.
That could damage the global economy and the long-term demand for oil, other analysts have warned.
U.S. light, sweet crude reached a 13-year peak of $38.35 per barrel on March 17. Traders bought heavily on Tuesday, anticipating that OPEC would announce a production cut Wednesday.
After the ministers' statements, U.S. crude futures for May delivery fell 22 cents to $36.03 per barrel in New York. In London, May contracts of North Sea Brent were 9 cents higher at $32.54 per barrel.
In the United States, the high oil and gasoline prices have become an issue in the presidential campaign.
Democratic contender Sen. John Kerry said that as president he would stop pumping oil into the nation's emergency stockpile until prices fell and would pressure OPEC to provide more oil. A spokesman for President Bush blamed high prices on the failure of Congress to approve Bush's energy proposals in 2001, and the Bush campaign started an ad accusing Kerry of favoring higher gasoline taxes.