OPEC energy chiefs gathered in Vienna Wednesday to rubber-stamp a deep cut in production in an effort to boost faltering prices, much to the dismay of oil importers in Asia, Europe and the United States.
Oil ministers from the 11-nation Organization of Petroleum Exporting Countries (OPEC) agreed to slash output by at least 1.5 million barrels a day from February -- and hinted that more output cuts could be in the pipeline if prices continue to sag.
"The overwhelming consensus is 1.5 million" barrels a day of production cuts, Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah told reporters on Wednesday. "The base (position) is 1.5."
The oil minister of OPEC kingpin Saudi Arabia, Ali al-Nuaimi said: "We are all done. It's just a formality now."
Al-Nuaimi said that the 1.5-million bpd output cut, equivalent to more than five percent of total OPEC production, would help restore a balance of supply and demand on the market.
Al-Nuaimi and several of his OPEC colleagues have moreover suggested that if supply continues to outstrip demand and prices remain depressed, the cartel will cut output again before the end of the northern hemisphere winter.
"If we agree to cut 1.5 and if we believe there is (still) a need to cut in March or April because of the situation on the market, we will do it," said Qatar's Abdullah al-Attiyah earlier.
Recent signs of a supply glut have sent crude futures tumbling in London and New York from highs above 35 dollars a barrel in October.
On Wednesday, the London Brent reference price opened at 25.65 dollars a barrel while New York futures remained stable at 30.29 dollars overnight. Traders say the market is taking the 1.5-million bpd cut in its stride and has factored the volume into prices.
But oil consuming countries have urged OPEC not to turn down the taps, fearing that higher prices will filter through, stoking inflation, hurting corporate profits and generally undermining world economic growth.
Analysts meanwhile warn that the cut has come too soon.
OPEC "is cutting production too soon and overreacting to lower prices," said Roger Diwan, managing director of the Washington-based Petroleum Finance Company (PFC).
"This short-term, highly reactive management will result in even more volatility on the market and lead to prices above 30 dollars a barrel in March or April when demand picks up again," Diwan said.
But OPEC is keen to act decisively to avoid a repeat of the dog days of 1998/99, when a flood of supply sent prices tail spinning to below 10 dollars a barrel.
"We're taking this decision in order (to avoid) the situation of 1998, when we had a collapse," said OPEC's new president, Chakib Khelil of Algeria.
The market crash hammered oil producers everywhere and prompted OPEC's last major cutback in production in March 1999.
That squeeze ultimately had the desired effect, sending prices soaring above 30 dollars a barrel, and generating multi-billion petrodollar windfalls for major oil exporters.
OPEC is hoping for a similar effect this time around, though ministers insist they are merely acting to try and secure a fair, stable market price for producers and consumers. In order to do this, they have warned that they will adjust supply much more regularly than in the past.
"We are on the same ship. We have to work together to reach safety," said al-Attiyah. "Low prices make consumers very happy, higher prices make producers happy. But we should both sides work together to make all of us happy." -- VIENNA (AFP)
© 2001 Al Bawaba (www.albawaba.com)
