OPEC announces historic cuts to buoy oil prices
The petroleum cartel said it will slash production by 2.2 million barrels per day in hopes prices will climb back toward $75 per barrel.
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Oil ministers attending the Organization of Petroleum Exporting Countries meeting will slash production by 2.2 million barrels per day (b.p.d), the largest single reduction in the group's history and more than expected ahead of the gathering. It follows a November production cut of 1.5 million b.p.d.
Oil prices have plunged since July, when crude traded at $147 a barrel. By midafternoon Wednesday, it was trading at $43.24 on the New York Mercantile Exchange.
"Supply is still somewhat in excess of demand," Saudi Oil Minister Ali al-Naimi told reporters in Oran, Algeria, according to the Associated Press. "To bring things in balance, there will be a cut to the tune of about 2 million barrels."
While oil markets had little reaction to the announced cut Wednesday, many analysts remain cautiously optimistic that oil prices could begin to stabilize at a higher level.
Vincent Lauerman, president of the Calgary, Canada-based Geopolitics Central, said the historically large cut could drive prices back above $70 a barrel. "OPEC, and in particular the Saudis, should be congratulated for finally acting less like a supertanker reversing direction and more like the US Federal Reserve fighting the global financial crisis."
But he cautions that oil prices are closely tied to the health of the larger global economy and that they could swing sharply lower based on the length of the worldwide recession.
"If the global recession is long and deep, we will see new lows for oil prices, probably sub-$20 per barrel on the spike downwards," he says. "OPEC is only going to cut so many barrels."
Some large oil producers outside of the cartel also pledged production cuts Wednesday, including Russia and Azerbaijan, which said they would each take 300,000 b.p.d off the market, according to Russian state media. Others, such as Mexico and Norway, have declined to commit to any production cuts.