http://www.nytimes.com/2008/09/10/business/worldbusiness/10oil.html?hp OPEC Says it Will Cut Oil Production E-Mail Print Reprints Save Share Linkedin Digg Facebook Mixx Yahoo! Buzz Permalink By JAD MOUAWAD Published: September 9, 2008 VIENNA — In an unexpected decision made after a six-hour meeting that lasted well into the night, the OPEC oil cartel said it would reduce its oil production by about half a million barrels a day in a bid to stem a rapid decline in oil prices in recent weeks. But fears that the market was currently oversupplied while demand for oil was slowing led the group to say it would “strictly comply” with production quotas set in September 2007. Since then, the group has been producing above those levels to drive prices down. The outcome was presented as a technical adjustment to curb the group’s overproduction, but OPEC’s president, Chakib Khelil, said the decision meant that OPEC producers would effectively reduce their overall production by 520,000 barrels a day. Oil prices traded electronically in New York jumped $2 a barrel after the decision.In its final statement, the oil-producing group said it had noted “a shift in market sentiment causing downside risks to the global oil market outlook.” Given OPEC members’ history of frequently pumping more than their quotas, it is not certain that they will abide by the new agreement. Ali Al-Naimi, the oil minister of Saudi Arabia, which has been pumping more than its quota in recent months, left the meeting without any comment. With crude oil heading down toward $100 a barrel, Saudi Arabia and other producers meeting here on Tuesday had suggested that OPEC would keep pumping at full tilt, even as some members of the cartel expressed concerns about rapidly declining prices. Members of the Organization of the Petroleum Exporting Countries account for 40 percent of the world’s oil exports. They had scheduled the late-night session to consider how to respond to a 30 percent drop in oil prices since July. Crude oil fell more than $3 a barrel on Tuesday. Ahead of the meeting, the cartel’s members appeared deeply split, with one camp, led by Iran and Venezuela, advocating reductions in output to stem further price declines, and another, led by Saudi Arabia, wishing to allow prices to fall further. As the group’s representatives arrived in Vienna, Mr. Khelil, who is also Algeria’s oil minister, said the cartel would probably keep production unchanged. At a news conference held after the meeting, Mr. Khelil said the group was merely responding to oversupply in the market. “My hunch is that prices will be going down despite the decision,” Mr. Khelil said. “There is an oversupply; everybody agrees about this.” The decision represents a rare case of OPEC’s going against the position of its biggest member, Saudi Arabia. The Saudi oil minister had said when he arrived in Vienna early Tuesday that the market was “fairly well balanced.” “We have worked very hard since June to bring prices to where they are now,” Mr. Naimi told reporters Tuesday morning. “We have been very successful.” Mr. Naimi was referring to a pledge Saudi Arabia made in June at a meeting of producers and consumers in Jeddah to keep pumping at full throttle to bring prices down. The kingdom is producing about 9.5 million barrels a day, 600,000 barrels a day more than its official OPEC quota. Oil prices peaked at $145.29 a barrel on July 3 but have been falling lately because of slowing global demand. On Tuesday, prices fell $3.08 to $103.26 a barrel in New York, their lowest level since April. The drop partly reflected the feeling that Hurricane Ike, which killed at least four people in Cuba and forced more than a million to evacuate, will miss the oil-production platforms in the Gulf of Mexico. About 80 percent of the gulf’s offshore oil production remains shut in after the passage of an earlier storm, Hurricane Gustav. Slowing economies and falling oil demand in major developing countries have led to a slowdown in the growth of oil consumption. As a result, many analysts agree there is more than enough oil on the market. Also, refiners typically need less oil in the third quarter, when they shut down for maintenance. Behind their sometimes opaque language, OPEC’s leaders are forced to perform a delicate balancing act. Leaving production unchanged at a time when demand growth is slowing could precipitate a price collapse, as happened in the late 1990s when prices fell below $10 a barrel. But cutting production at today’s high levels could incur the wrath of consumers, who are already unhappy with the elevated prices. Oil has been above $100 a barrel since March. In the days leading to the meeting, some countries, like Iran, Libya and Venezuela, had signaled that they wanted the cartel to cut production. OPEC’s own analysis suggested that the group was producing far more oil than is needed. According to Lehman Brothers, OPEC is pumping 2.18 million barrels a day more than it did last year. Saudi Arabia is in a particularly sensitive position. The kingdom is the only country with any significant spare capacity and is in a position to impose its will on other OPEC countries. The Saudis recently brought a new field online, called Khursaniyah, which has a production capacity of 500,000 barrels a day. But the Saudis are also keenly aware of the state of the market. Oil consumption in the United States, the world’s biggest market, is about a million barrels a day lower than last year and consuming nations have pleaded for producers not to reduce their production. Some OPEC members are also worried about a potential slowdown in demand in Europe and Asia. Still, there was perceptible anxiety among producers at the speed of the decline in prices. “We need to be careful that there won’t be a price collapse but that is something that does not look probable,” Venezuela’s energy minister, Rafael Ramírez, told reporters. “Looking at speculation, the dollar and other factors that have been affecting the market, maybe we are going to come to an equilibrium at around $100 a barrel, perhaps this is the level of the market.” OPEC’s next meeting is scheduled for mid-December. Michael Grynbaum contributed reporting from New York.
i thought OPEC's target price for oil was $45???? Hmmmm - seems like that's certainly not the case. And....this is why off-shore drilling really won't lower prices. Because OPEC will just cut supply to keep the prices up....
With the way the economy is going, they might have to do this to prevent a collapse in prices. I just hope Americans aren't damn stupid enough to renew their interest in big gas guzzlers yet again.
if anything, i would think this would prevent that. it's not like OPEC is allowing the price to drop back to $2/gallon. i would think that would have to be the price for people to start that trend again.... or maybe i'm give our fine citizens too much credit.
If you keep oil at $100, OPEC, the world is going to find alternatives...largely because you pushed them to. If that happens, I hope you can find a way to drink all that oil.
I wish oil prices could stay high for a few years and somehow we keep food prices down. It would do so much long term good for our environment and economy. People might realize that food from texas is just as good if not better as the food from Cali. Or that stone from Italy doesn't look to much different from Austin. Reduce traffic deaths with less soccer moms driving SUvs then don;t need, push more demand for public transport. Really if we can survive these high energy prices it will do so much good.
Casey, even though I understand the point you are trying to make, not everyone is financially available to withstand these high gas prices for a yr or two more...
well they are here to stay so they better get that way or make changes fast. It may drop down to 2.80-3.20 and be steady but the days of 2/gallon are gone.
Very, very unlikely. You need fuel for the machines used to harvest and process food. You need fuel to transport food. Corn is used in a good many food products, and now it is used for fuel also. What? Really? The proposed expansion to Metro Rail is going to cost $1.23 BILLION. So you could spend $100 billion or so for a comprehensive system, and 20 to 30 years later, you'll have a really ineffective system that is constantly under construction and a city/county hemorraging in debt. Of course, we have to figure out how to deal in the couple of decades this will take. That is still a far cry from $4.10/gallon.
I guess it would have to drop down to ~2/gallon for consumers to want to buy suburban tanks again, but things come in cycles. I highly suspect (but wish I were wrong) that Americans would drive big cars if the opportunity were there. Whether it is 'green' or not might make some feel slightly good or bad, but marketing does a good job in selling the idea of living in the "now". There's still debate whether any nation outside of Saudi Arabia or Iraq has exploitable areas for new fields. Brazil had a nice discovery, but it's unlikely that further finds will keep up with the current growth rate for world consumption (that growth rate assumes there isn't some catastrophic slowdown in the world economy). OPEC is divided between the interests of nations wanting to wring out as much as they can from their peak and on the other side, Saudi Arabia, who has the theoretical capacity to produce current levels beyond 20 years. The key to get us out of this cycle of addiction is changing the infrastructure for energy distribution. But that costs hundreds of billions in upfront money, so it isn't going to be picked up anytime soon. Even if the savings in today's oil prices would eventually (after ~10 years) net hundreds of billions every year....
I just can't believe OPEC would think that $100/barrel is somehow LOW! People were freaking out when we crossed that - just this year. It's still freakin high and it's crazy high - and these OPEC guy want to tighten supply? We have got to separate oil and transportation. It's not just about foreign oil, it's all oil - becauase OPEC sets the price - it's one big market. And OPEC sets the price.
Why can't these people take the bus to work? I'm glad OPEC is cutting production. The world needs oil at $150 for its own good. There has already been reduction in usage so we might not see a spike in oil as many might expect. In fact, oil futures at this hour are only up half a point even despite this news.
meh this is a gap up in oil that will likely get sold. the real issue out there is declining chinese demand that no one is talking about in the mainstream media.
Exactly, I have not understood why the largest agricultural producing country in the world has not just jacked up prices on food to the Opec nations...fight fire with fire. DD
Better yet, refuse to build the refineries that make that oil useful. I promise you it ain't the saudi's designing any of this equipment. Of course, from my jaded standpoint I don't care what opec does. If you don't like gas prices, stop using so much gas.
