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OPEC agrees to cut oil production by at 1.5 million barrels
VIENNA, Austria -- OPEC representatives agreed Thursday on a plan they hope will reduce the cartel's production and keep prices from falling when seasonal demand dips early next year. The pact is expected to have little, if any, impact on consumers.
The Organization of Petroleum Exporting Countries said the agreement would lead to a net reduction of 1.5 million to 1.7 million barrels a day in OPEC's actual output.
To achieve that goal, the group will raise its formal target for oil production in hopes members will adhere more strictly to the new quota.
Analysts estimate that OPEC is producing as much as 3 million barrels a day above its existing target of 21.7 million barrels. This gap between OPEC's target and its actual output widened during the autumn, leading many observers to question the group's credibility.
OPEC supplies about a third of the world's crude.
Under the plan, which was proposed by Saudi Arabia, OPEC's most powerful member, the new production target will be increased by 1.3 million barrels a day, or 6 percent, to 23 million barrels effective Jan. 1. At the same time, OPEC urged members to comply with their new quotas, OPEC President Rilwanu Lukman told a news conference.
OPEC is fearful of oversupplying the market ahead of a seasonal, post-winter decline in demand in key markets in the Northern Hemisphere.
The new target will last indefinitely, Lukman said, speaking after oil ministers reached the agreement at a meeting in the cartel's headquarters in Vienna.
Analysts said the agreement would have a minimal impact on consumers.
"This isn't designed to create a wholesale upward shift in crude prices," said Mike Rothman, an energy analyst at Merrill Lynch in New York.
In assessing the oil market, OPEC delegates had to consider immediate disruptions to global supplies in Venezuela and the Persian Gulf. A national strike in member state Venezuela has paralyzed oil shipments from that country, the world's fifth-largest crude exporter. The strike entered its 11th day Thursday.
The unrest in Venezuela has compounded uncertainty about the impact a U.S.-led military attack might have on crude production in Iraq, which has the world's second-largest oil reserves after Saudi Arabia.
"We wish to reassure consumers that we will do everything we can to maintain steady, secure supplies of crude at all times, to cover any eventuality that may arise. We have sufficient spare capacity within our organization to do this," OPEC's Lukman told delegates at the start of their meeting.
Lukman said other OPEC members were willing to help Venezuela "any way they can" to meet its obligations for crude shipments to customers. The Venezuelan government has so far not requested any help, he added.
Due to the current level of quota-busting, OPEC expects the quota increase to occur on paper only and not add any fresh barrels to the market. Ministers said that compliance with the new quotas is crucial to the plan's success.
"All member countries have committed themselves to that," Lukman said.
However, he acknowledged some member countries might not have the political will to pump less oil in the hope of keeping prices firm.
"That's something else," Lukman said.
The cartel needed to do something to salvage its credibility in the market, said Falah Aljibury, an energy consultant based in Alamo, Calif.
By raising its output target to "legitimize" some excess production, while also requiring better compliance with its quotas, the cartel sends a message that it is in better control of its own affairs, Aljibury said.
In New York, January contracts of light, sweet U.S. crude rose 55 cents to $27.95 barrel. Contracts of North Sea Brent crude for January delivery rose 56 cents to $26.81 a barrel in trading in London.