JP/14/Oil

JP/14/Oil

OPEC agrees to cut surplus output to defend high prices

Amelie Herenstein Agence France-Presse/Cairo

OPEC oil producers agreed on Friday to reduce crude supplies by one million barrels a day from the beginning of next year in a bid to curb a sharp slide in oil prices from record high levels.

The 11-member cartel left its official output quota of 27 million barrels a day unchanged, but agreed to scale back surplus production.

Members of OPEC, which supplies about 40 percent of the world's oil, have been pumping for months at close to full capacity to try to bring down prices from record high levels which topped US$55 a barrel in October.

The Organization of Petroleum Exporting Countries (OPECC) said in a statement that the decision to rein in supplies was taken "to prevent oil prices continuing to deteriorate to an undesirably low level".

"The downward trend seemed to us to be a bit too rapid, and it appeared that if we did not take this sort of decision the prices would not stabilize and we would find ourselves in a situation where we couldn't control the stability of the market," said Algeria's Energy Minister Chakib Khalil.

OPEC ministers will meet again at their Vienna headquarters on Jan. 30 to review the situation.

Oil prices rose slightly as OPEC moved to tighten the taps. New York's main oil contract, light sweet crude for delivery in January, was 15 U.S.cents higher at $42.68 a barrel in late morning trading.

Although OPEC is relieved to see prices cool from the record highs, which triggered widespread concern from consumer nations, they are nervous about the risk of a slump in markets when spring arrives in the northern hemisphere.

Saudi Arabian Oil Minister Ali al-Nuaimi said the cartel acted to try to prevent global petroleum inventories recovering too quickly.

"We took the decision to avoid an extraordinary build up of the inventories," he said.

Quota-busting is common for OPEC producers. But Jamal Qureshi, an analyst at Washington-based consultancy PFC Energy, said he expected the cartel to strive to enforce the announced output reductions.

"I think they'll implement at least most of it, and it will be the Gulf producers that bear the brunt," he told AFP on the sidelines of the meeting.

Qatari Energy Minister Abdullah bin Hamad al-Attiyah said the Jan. 30 meeting would discuss output levels for the second quarter of 2005.

Asked if he expected OPEC producers to comply with the cut he said: "Yes I think so, because it's very important to comply".

"Statistics show that if they do not comply it will be negative," the minister said, adding that he was "still worried" about the supply situation in the second quarter.

"If there is a need to cut in January then we will do it."

Iranian Oil Minister Bijan Namdar Zangeneh agreed that a further cut was possible in the second quarter of 2005.

"If the market's reaction tells us it's necessary we will do it. It depends on the market reaction, the price," he said.

OPEC's decision to shave output while prices are still above $40 a barrel risks irking oil-importing nations who are concerned that high energy prices will slam the brakes on a global economic recovery.

The pro-consumer International Energy Agency insisted that while prices may have eased slightly recently, "the market is not out of the woods yet."

"Producer concern over a precipitous fall is prices is somewhat overstated," the IEA said in a monthly report on Friday.

OPEC argues that as well as falling prices, a weak dollar, in which oil is priced on world markets, is also cutting into their revenues.

But Nuaimi said OPEC would continue to bill its customers in dollars.

"OPEC is staying with the dollar. The dollar will change. Today it's down, tomorrow it's up. It's a phenomenon of the currency market," he said.