Skip to: Content
Skip to: Site Navigation
Skip to: Search


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.

(Page 2 of 2)



"The non-OPEC producers that have also agreed to make cuts are unlikely to do so in any significant way," says Mr. Lauerman. "Production already tends to be declining in these countries for various reasons, and they will simply count this towards their announced cuts."

Skip to next paragraph

Efforts at coordination among producers highlights the growing concern among the world's oil producers, says Olivier Jakob, energy analyst at Zug, Switzerland-based Petromatrix. With oil revenues falling so quickly, the price of investing in new technologies and oil fields has become prohibitive for many producers, who have also seen government revenue adversely effected.

Lower prices may be a relief to some consumers looking to fill up their gas tanks or heat their homes. But Mr. Jakob warns that if too many new developments are derailed by the price plunge, it may be consumers who pay when prices eventually push higher and supply has dried up.

"In the long run, if too many projects are pushed back, then when prices eventually do bounce back that will create greater pressure on OPEC," he says. "They need to find a price level at which supply and demand can reach a steady equilibrium."

Several members of OPEC, which pumps more than a third of the world's oil, said at least 2 million barrels needed to go from daily output to prevent a massive buildup in inventories.

"A minimum of 2 million, we think, needs to be cut so we can balance the market," Iraqi Oil Minister Hussain al-Shahristani told Reuters.

The cut, the third this year, brings a total reduction in OPEC supply to 4.2 million b.p.d, nearly a 5 percent cut in world oil supplies. OPEC has encouraged other producers to cut back, too. Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge.

Leading a high level delegation, Russia's Deputy Prime Minister Igor Sechin said in a speech to OPEC that Moscow did not plan to join in coordinated output cuts and did not want to join the group.

Oil below $50 a barrel is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran, which are dependent on higher prices to fund ambitious domestic programs.

It is hoped that a sharp supply cut will put oil on the path toward $75.

"You must understand the purpose of the $75 price is for a much more noble cause," the Saudi oil minister said. "You need every producer to produce, and marginal producers cannot produce at $40 a barrel."

"Therefore we believe that $75 is probably more conducive to marginal producers to continue so we don't have a shortage in the market and we avoid the future sky-rocketing of prices."

Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation – a growing source of concern.

• Material from Reuters was used in this report.

Permissions