OPEC's decision to trim oil production stumbles
OPEC's decision to trim oil production stumbles
VIENNA (Agencies): An OPEC decision to trim oil output for the first time in years stumbled yesterday when prices sank despite unprecedented gifts of cuts from other exporters.
But the producer club that pumps 40 percent of global output put a brave face on the no confidence vote by predicting a rally when evidence gradually emerges of supply restraint.
OPEC oil ministers agreed yesterday to cut output by 1.245 million barrels a day over the next nine months in a bid to boost prices, a statement released here said.
"Reflecting their serious desire to stabilize the market in the interests of all oil producers, OPEC member countries have agreed to voluntarily cut" production "with effect from 1st April 1998 until the end of the year", OPEC said in a statement after more than six hours of talks here.
The cuts were unchanged from figures given over the past week by individual members of the 11-member Organization of Petroleum Exporting Countries.
Iraq is the sole member of OPEC exempt from the production cuts "in light of its exceptional circumstances", the statement said.
The cuts will be on the basis of February output by members "as given by selected secondary sources", rather than on their official quota levels, the statement said.
Several OPEC members have been producing well above their official quotas despite the recent slide in oil prices to their lowest levels in almost 10 years.
In London, crude prices continued to fall early yesterday as traders reacted with "disappointment" to OPEC's meeting,
Brent North Sea oil, for delivery in May, fell to $14.35 per barrel, from $14.79 late Monday.
"The market speaks with one voice and it is the voice of disappointment," said an oil expert at Salomon Smith Barney trading house, Peter Gignoux.
Analysts gave a cool reception to the decision, arguing that more would need to be done to halt the slide in prices.
"The market should judge the OPEC decision in two months," said Saudi Arabian Oil Minister Ali al-Naimi.
He said OPEC could take further action to support the market if necessary in what he called its new spirit of pragmatism.
Skeptical traders agree it will take time to detect the tell- tale changes in crude flows that will provide the vital evidence needed to underpin a sustained price rescue.
But they were already selling the market when an emergency OPEC meeting approved a 1.245 million barrels per day (bpd) cartel contribution to a two percent cut in global output.
The rest of the sacrifice will come from non-OPEC Norway, Mexico, Egypt, Oman and Yemen, which pledged cuts of 270,000 bpd for a total of 1.5 million bpd in overall reductions.
"The fall is hopefully a short-term blip. I think the market is overplaying the pessimism," said a top executive at a Gulf Arab oil company, noting OPEC was making its first reduction in output since the mid-1980s.
"Remember, this is a unique agreement with non-OPEC producers. We were able to get an accord with Mexico and Norway when everyone said we couldn't," said the executive.
But traders are signaling they want deeper reductions amid concerns that glutted markets could remain awash with crude.
Those worries helped lower benchmark Brent 53 cents to $14.24 a barrel in London.
The deal, spearheaded by Saudi Arabia, Venezuela and Mexico, excludes OPEC member Iraq, which is still under UN sanctions imposed after its 1990 invasion of Kuwait.
Traders say the new cuts could be threatened when an expected rise in Iraq's UN-monitored Iraqi sales occurs later this year under an expanded program to obtain food and medicine.
A price fall of 40 percent from October to mid-March shaved billions of dollars off OPEC revenues and helped swell global stocks to a 20-year high.
The slump has been caused by weak demand in cash-strapped Asian countries, an earlier 10 percent rise in OPEC's output limits, a mild winter and increased Iraqi exports.
An OPEC communique appealed to other non-OPEC oil exporters who have not yet offered reductions to support the market by moderating output.
Iran leant weight to the accord after the meeting when oil minister Bijan Zanganeh said his planned reductions would definitely remove Iranian oil from the market.
Production cut February output
--------------------------------------------------------
Algeria 50,000 868,000
Indonesia 70,000 1,380,000
Iran 140,000 3,623,000
Kuwait 125,000 2,205,000
Libya 80,000 1,453,000
Nigeria 125,000 2,258,000
Qatar 30,000 700,000
Saudi Arabia 300,000 8,748,000
United Arab Emirates 125,000 2,382,000
Venezuela 200,000 3,370,000
Total 1,245,000 26,987,000
* The figures are in barrels per day