VIENNA, Austria - OPEC oil ministers agreed today to curb overproduction by more than 500,000 barrels a day, in a compromise meant to avoid new turmoil in crude markets while seeking to prevent prices from falling too far.
The move reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a new record just short of $150 a barrel in July, only to drop nearly 30 percent off those peaks in subsequent months.
Oil prices lost more ground Tuesday ahead of the OPEC decision. Benchmark crude for October delivery fell US$3.08 to settle at US$103.26 on the New York Mercantile Exchange, the lowest settlement price since April 1. The contract rose 11 cents to settle at $106.34 in volatile trading Monday.
In aftermarket trading Tuesday, prices tumbled more than US$4 a barrel to a new five-month low of $101.74, within striking distance of the psychologically important US$100 threshold, a level first reached on Feb. 19.
A statement by the Organization of Petroleum Exporting Countries issued after oil ministers ended their meeting early Wednesday said the organization had agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in overproduction.
Saudi Arabia alone accounts for more than that amount of output over its official quota — all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.
OPEC membersl regularly churn out oil above the organization’s overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.
Still, the decision could have the psychological effect of steadying eroding prices at or above the US$100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months. While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and exclude Iraq, as well as Indonesia which used the Vienna meeting to announce it was suspending its full membership.
The statement noted that “prices had dropped significantly in recent weeks driven by a weakening world economy ... with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions.” And it warned of the possibility of further price erosion, forecasting a possible “shift in market sentiment, causing downside risks to the global oil market outlook.”
But analysts said several factors could stem any further slide in prices over the next few months.
“There are good reasons ahead for prices to turn toward the upside,” said Johannes Benigni, managing director of JBC Energy in Vienna. “Take the next hurricane,” he said, alluding to the chances that — after a few near misses in recent weeks — further storms could savage oil installations in the Gulf of Mexico.