OPEC approves cutting oil output

OPEC approves cutting oil output

Associated Press, Cairo

OPEC on Friday agreed to cut production back to target production levels early next year in a bid by the organization's 11 member states to stave off further falls in the world price while trying to avoid a new frenzy of buying.

Saudi Oil Minister Ali Naimi said the total reduction of 1 million barrels a day will be implemented starting Jan. 1. He told reporters the Organization of Petroleum Exporting Countries would meet again at month's end to review what effect the measure has had on prices that have fallen sharply recently while remaining high above previous established levels.

If implemented, the output reduction would scale back output to the group's overall ceiling of 27 million barrels a day.

Sentiment for turning down the spigots gathered momentum earlier this week when oil giant Saudi Arabia indicated it was receptive to the idea.

Al Naimi suggested OPEC was braced for some further drops in world crude prices, despite recent sharp declines.

Benchmark U.S. crude futures have fallen by almost a quarter since the record prices of more than US$55 a barrel in late October. The decline has been sharpest in the last week or so, spurred by increases in U.S. petroleum inventories, mild winter weather and little sign of a slowdown in OPEC output.

"We have done everything to moderate the price," the Saudi minister said, alluding to overproduction in recent months. "It is moderating and it will probably moderate more."

Despite some pressure by other OPEC nations to raise the bar on OPEC's price band - now at between US$22 to US$28 - Al Naimi said the group decided to leave that marker unchanged for now. But he suggested the 11-nation oil producer group could decide on further cutbacks even before crude prices fall below those levels.

"We will defend (market) stability by going up or going down," he said.

Earlier, the London-based Al-Hayat Arab newspaper reported that if OPEC decides to cut overproduction, Saudi Arabia - responsible for most of the overproduction - would scale back its January output by 500,000 barrels a day.

The OPEC meeting comes amid members' concern about a possible oil glut in the second quarter of 2005 and prices that are now a quarter below their peaks above $55 a barrel.

Consuming nations, meanwhile, have called on OPEC to keep output high to underpin economic recovery.