OPEC members agreed Saturday to cut 4
percent from their targeted oil output, or 1 million barrels a day,
in the hope of shoring up crude prices at a time of weakening
The cut, which was at the upper end of most analysts'
expectations, is aimed at keeping prices from falling further in
the face of a seasonal dip in purchases and an overall decline in
global economic growth. It will take effect April 1, the
Organization of Petroleum Exporting Countries said.
The cartel's members pump almost 40 percent of the world's oil,
and their decision will affect retail prices for gasoline and other
refined products in importing countries such as the United States.
One analyst predicted gasoline prices could rise sharply, but
others said the impact would be less dramatic.
OPEC announced its decision after two days of talks in the
"The present weaker world economy and the traditional sharp
downturn in demand associated with the second quarter both clearly
point to the need for a correction in oil supply, and the
conference has taken the decision to stabilize the oil market,"
Unlike previous OPEC meetings in recent years, this one unfolded
against a backdrop of economic fragility, with stock markets from
New York to Tokyo registering steep losses in share values.
Consumer confidence has suffered, and fears of a recession are
These economic conditions complicated OPEC's efforts to arrive
at a suitable cut in production, oil ministers said.
"We have to follow continuously this situation," OPEC
secretary general Ali Rodriguez told a news conference after the
meeting. "The slowdown in the economy was entirely present in our
The unusually long time it took OPEC to reach a decision attests
to the difficulty delegates faced in working out the specifics.
OPEC will trim its output quota to 24.2 million barrels a day
from its current level of 25.2 million barrels. Energy analysts had
generally forecast a decrease of at least 500,000 barrels a day.
Markets were closed Saturday, but they had surged higher, then
retreated Friday on the likelihood of a cut. Contracts of light,
sweet crude for April delivery closed at $26.74 a barrel, up 19
cents, on the New York Mercantile Exchange.
May contracts of North Sea Brent crude ended 4 cents higher at
$25.05 on the International Petroleum Exchange in London.
"I think a million barrels a day is already more or less
factored into the market," said Mehdi Varzi, a senior oil analyst
at the investment bank Dresdner Kleinwort Wasserstein in London.
"There may be a short-term rebound in prices," Varzi said, but
he predicted that crude prices would decline over the next year or
Bill Edwards, an energy consultant based in Houston, expressed
greater concern about the impact of the cut.
"I think OPEC will be surprised at how steeply the price
rises," he said. Edwards predicted that crude prices could
increase by as much as $6 a barrel and gasoline prices by as much
as 30 cents a gallon.
But others analysts said markets would react with much less
alarm to OPEC's decision.
"There may be a slight rise on Monday, but I don't think it
will be huge," said Lawrence Eagles, head of commodity research at
London brokerage GNI Ltd.
"On a retail level, (gasoline) prices will probably firm up a
little bit, but they're not going to spike as they did last year,"
he said by phone from his home in Northern Ireland.
OPEC president Khelil said the group made its decision with the
interests of consuming countries in mind.
"Just as you are concerned about consumers, we are concerned
about consumers," he told reporters.
However, Khelil noted that high prices for gasoline in Europe
are due primarily to fuel taxes, and he called on governments to
lower them. Popular resentment at gasoline prices sparked protests
last year in Britain, Spain and other European countries.
The production cut will be OPEC's second of the year so far.
OPEC members agreed in January to lop 1.5 million barrels off their
previous quota, a decrease that took effect Feb. 1. The current
global economic weakness appears to have reinforced the case within
OPEC for deeper cuts.
The organization also was anticipating a slowdown this spring in
seasonal demand for heating oil and gasoline as the weather starts
to warm in many importing nations.
Saudi Arabia's oil minister Ali Naimi said OPEC expects non-OPEC
producers such as Russia, Mexico and Angola to cooperate by holding
back some of their own oil from the market.
Iran's oil minister Bijan Namdar Zangeneh said non-OPEC
countries will probably trim their supply by 200,000 barrels a day,
but he gave no further details.
Analysts noted that last month OPEC members produced some
500,000 barrels a day above the target they agreed to in January.
This amount of overproduction means that even if cartel members
were to reduce their official output by 1 million barrels a day,
the actual decrease might equal only half that amount.
OPEC is trying to stabilize prices at around $25 a barrel for an
average of seven benchmark crudes. The OPEC average price has slid
in recent months from more than $30 a barrel.
"I think they've done the best they can," Eagles said, calling
the challenge of stabilizing prices "an impossible task" for OPEC
to achieve on its own.
The cut will apply to all of OPEC's 11 members except for Iraq,
which does not participate in the group's production agreements
because its oil exports are regulated by the United Nations.
OPEC said it will meet again in June to assess market conditions
at that time.