ORAN: The OPEC oil cartel agreed on Wednesday to a record output cut of two million barrels a day, the Saudi Arabian oil minister said, with non-member producers also ready to slash 600,000 barrels.
“There is a consensus on a cut of two million barrels a day, Saudi Arabian Oil Minister Ali Al-Nuaimi told reporters as a meeting of the Organization of Petroleum Exporting Countries got underway here.
The OPEC cut from headline output of 27.3 million barrels per day, which would be the biggest reduction ever, could be complemented by combined reductions from non-OPEC members Russia and Azerbaijan of 600,000 barrels a day.
Together these moves would take 2.6 million barrels of oil off the market.
The OPEC cut amounts to about seven percent of the cartel’s production.
OPEC ministers called the meeting here to take action against a steady slide in oil prices, which are now 70 percent off their highs of $147 a barrel in July, as demand dries up in recession-hit industrialized consuming nations.
Just before talks opened here, non-members Russia, which is attending the meeting, and Azerbaijan said they were ready to cut their own oil production by about 300,000 barrels a day each.
OPEC officials had earlier appealed to non-member producers to help them stabilize the market. OPEC Secretary General Abdalla Salem El-Badri said Tuesday he wanted to see a cut of 500,000-600,000 barrels a day by non-members.
“The Saudis are traditionally the moderates or ‘doves’ within the cartel and this call for so severe a cut is bad news for global consumers – unless any higher prices ultimately lead to fresh exploration and drilling, said Cameron Hanover analyst Peter Beutel.
The big problem with a production cut of two million barrels per day or more is that it will mean that OPEC will have cut nearly four million bpd this year, an amount unparalleled in history, added Beutel.
OPEC s official daily output target is 27.3 million barrels but analysts say it is producing slightly more than this as some members seek to boost income.
Several OPEC members heavily dependent on oil exports, notably Nigeria, Ecuador and Venezuela, are being squeezed financially after oil prices plummeted 70 percent from record highs of $147 a barrel in July.
There will be a cut of about two million barrels, Nuaimi had predicted said on arriving in the Mediterranean port city of Oran on Tuesday.
Supply is still somewhat in excess of demand, he told reporters.
Inventories are also higher than normal. To bring things in balance there will be a cut of about two million barrels.
Russian Deputy Prime Minister Igor Sechin said late on Tuesday that Russia may slash daily oil export by up to 320,000 barrels, on top of a similar cut made in November.
If the current price situation continues, we do not exclude the possibility that cuts in export will also continue at the level of 300,000 to 320,000 barrels a day, Sechin told reporters in Oran.
Russia, which has sent a large delegation to Algeria, rivals Saudi Arabia as the world s largest oil producer.
Russian Deputy Energy Minister Anatoly Yanovsky meanwhile said on Wednesday there would be no discussion in Algeria about it possibly joining OPEC.
OPEC officials acknowledge that they are in a tight spot as crude prices slide in the face of a global economic downturn that has sapped demand for energy in the industrialized world.
In such circumstances, raising prices threatens to erode demand further.
OPEC said in a report on Tuesday that the growing imbalance on the oil market… presents a real challenge for all market participants and will be the main focus of discussion at the Oran meeting.
