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OPEC agrees to trim oil production by at least 1.5 million barrels a day

Updated:
VIENNA, Austria (AP) _ In an unusual decision aimed at keeping crude oil prices from falling, OPEC agreed to cut production by the time seasonal demand dips early next year.

The Organization of Petroleum Exporting Countries said Thursday's agreement would lead to a net reduction of 1.5 million to 1.7 million barrels a day in OPEC's actual output.

To achieve that goal, the group will take a counterintuitive approach: raising its official production target in hopes that member countries will more be likely to adhere to the quotas instead of exceeding them as they are now.

The pact is expected to have little, if any, impact on consumers.

Analysts estimate that OPEC is producing as much as 3 million barrels a day above its existing target of 21.7 million barrels. This gap between OPEC's target and its actual output widened during the autumn, leading many observers to question the group's credibility.

``If you bring quotas and production close together, the market begins to believe in quotas again,'' said Raad Alkadiri of The Petroleum Finance Co., a consultancy based in Washington.

OPEC, which supplies about a third of the world's crude, is fearful of oversupplying the market ahead of a seasonal, post-winter decline in demand in key markets in the Northern Hemisphere.

Under the plan, which was proposed by Saudi Arabia, OPEC's most powerful member, the new production target will be increased by 1.3 million barrels a day, or 6 percent, to 23 million barrels effective Jan. 1. At the same time, the group urged its members to comply with their new quotas, OPEC President Rilwanu Lukman told a news conference.

The new target will last indefinitely, Lukman said, speaking after oil ministers reached their agreement in a meeting at the cartel's headquarters in Vienna.

Analysts said the agreement would have a minimal impact on consumers of refined products such as gasoline and heating oil.

``This isn't designed to create a wholesale upward shift in crude prices,'' said Mike Rothman, an energy analyst at Merrill Lynch in New York.

Due to the current level of quota-busting, OPEC expects the quota increase to occur on paper only and not add any fresh barrels to the market. The plan's success hinges on the willingness of OPEC members to show greater discipline in tightening their taps on production in coming months.

However, Lukman acknowledged that some member countries might not have the political will needed to pump less oil in the hope of keeping prices firm.

In fact, some analysts questioned whether member countries wouldn't just continue busting the new, higher quotas. Bill Edwards, an independent consultant based in Houston, likened the increase in OPEC's target to a tempting dessert offered to a man on a diet.

In assessing the oil market, OPEC delegates had to consider immediate disruptions to global supplies in Venezuela and the Gulf. A national strike in member state Venezuela has paralyzed oil shipments from that country, the world's fifth-largest crude exporter. The strike entered its 12th day Friday.

The unrest in Venezuela has compounded uncertainty about the impact a U.S.-led military attack might have on crude production in Iraq, home to the world's second-largest oil reserves after Saudi Arabia.

``We wish to reassure consumers that we will do everything we can to maintain steady, secure supplies of crude at all times, to cover any eventuality that may arise. We have sufficient spare capacity within our organization to do this,'' OPEC's Lukman told delegates at the start of their meeting.

In New York, January contracts of light, sweet U.S. crude rose 4 cents to $28.05 a barrel. Contracts of North Sea Brent crude for January delivery closed 62 cents higher at $26.87 a barrel in London.
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