OPEC agrees to cut oil output by 6 percent

Associated Press

CAIRO, Egypt — OPEC agreed Friday to carry out a planned 6 percent cut in its official oil output after crude producers outside the cartel promised to make reciprocal cuts in a display of unprecedented — but fragile — solidarity.

Oil ministers from the Organization of Petroleum Exporting Countries decided in an emergency meeting to slash the group’s production target by 1.5 million barrels a day beginning Jan. 1 in a bid to bolster sagging world oil prices. The cuts are to last for at least six months.

The decision appears unlikely to have a major impact on the prices consumers pay for gasoline or heating oil. OPEC approved the cut in principle back in November, and energy markets have already factored it into current prices for crude and refined oil products.

In Washington, U.S. Energy Secretary Spencer Abraham noted OPEC’s decision but would not comment on it in detail.

"We will continue to deliver our consistent message to oil producers: They should take care to ensure that their actions support the world economy and ensure adequate supplies for world markets," Abraham said in a statement.

OPEC, which pumps about a third of the world’s oil, has a daily output target of 23.2 million barrels. It decided to proceed with its planned cut only after persuading independent producers such as Russia, Norway and Mexico to reduce their own supplies.

Having already trimmed OPEC’s official production by 3.5 million barrels a day this year, the group’s 11 member nations were determined to make rival, independent producers share the burden of the next decrease instead of boosting sales at OPEC’s expense.

"The main task for us at this moment is the stabilization of the market," OPEC Secretary-general Ali Rodriguez told a news conference.

Oil producers have suffered from "a sustained drop" in crude prices during the past month, he said. "If we maintain this trend, we can suffer a collapse in the price. … It’s a very big problem for producers and even for consumers."

OPEC’s announcement got a mixed response from major oil markets. The price of Brent crude contracts for February delivery climbed 42 cents to $20.76 a barrel, after having jumped by $1 Thursday on the International Petroleum Exchange in London. February contracts of light, sweet crude fell 50 cents to $20.40 on the New York Mercantile Exchange, the second straight day of decline after an 8 percent surge Wednesday.

OPEC’s benchmark crude price averaged $18.68 a barrel Thursday, the most recent day for which information was compiled.

Rilwanu Lukman, Nigeria’s presidential adviser on petroleum and energy, said OPEC’s production cut would be "more than enough" to lift the group’s benchmark price to $22 a barrel — the group’s minimum target.

However, some member countries questioned expressed doubt.

"We hope that prices will stabilize within reasonable limits, meaning between $20 and $25 (a barrel). This is what is expected now," Saudi Arabian Oil Minister Al Naimi told reporters before the meeting began.

Even Rodriguez, the group’s secretary-general, acknowledged the necessity of revising OPEC’s expectations about prices in light of the current weakness in demand.

"We have to adjust sometimes according to the situation," he told reporters late Friday. "Even now, we are starting to analyze the possibility of a new benchmark."

Although OPEC agreed in November to reduce production, it made its decision conditional on a reciprocal decrease of 500,000 barrels a day in output from major oil producers outside the group.

The issue came to a head this autumn as the faltering world economy, together with the uncertainty caused by the Sept. 11 attacks on the United States, dragged down prices about 30 percent.

Russia, the world’s second-largest producer after Saudi Arabia, promised at first to cut by a token 30,000 barrels a day. Russian companies later yielded grudgingly to OPEC’s veiled threats of a price war and agreed to pare output by 150,000 barrels a day.

"If we are going to take action to help prices recover, then it’s in their own interest to come along with us," said Lukman, who has been chosen to serve next year as OPEC’s president.

In the end, five non-OPEC suppliers pledged to cut output by a combined 462,500 barrels a day — less than OPEC was looking for, but enough of a commitment for the cartel to justify curtailing its own production.

The accord with Russia could prove to be brief. The Russians have only offered to cut production for the first three months of next year, while OPEC wants the cuts to continue at least until July.

In a sign of the seriousness with which OPEC views Russia’s increasingly powerful role, Rodriguez said he plans to fly to Moscow for consultations as early as next month.