OPEC oil ministers confirm 6 percent cut in crude production in bid to lift prices

Friday, December 28th 2001, 12:00 am
By: News On 6

CAIRO, Egypt (AP) _ After more than a month of uncertainty, OPEC confirmed Friday it would cut its official output by 6 percent in an effort to firm up sagging oil prices and protect its member nations' main source of income.

Oil ministers from the Organization of Petroleum Exporting Countries agreed in an emergency meeting that it would slash output by 1.5 million barrels a day beginning Jan. 1. The cuts are to last for at least six months, OPEC officials told a news conference.

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.

OPEC decided to proceed with the planned cuts only after persuading rival, independent producers such as Russia and Norway to reduce their own output.

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 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 reporters.

Oil producers have suffered ``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 perky 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 rose 32 cents to $21.22 on the New York Mercantile Exchange.

``The reaction of any oil producer to OPEC's decision can be none other than positive, as it is already pushing oil prices up considerably,'' said Leonid Fedun, vice president of Lukoil, Russia's biggest oil producer.

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 price.

However, some member countries questioned whether the combined reduction in OPEC and non-OPEC supplies would be sufficient to restore OPEC's benchmark to its desired range of $22 to $28 a barrel.

``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 just before the meeting began. Saudi Arabia is OPEC's largest and most influential member.

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 weakening world economy, together with the uncertainty caused by the Sept. 11 attacks on the United States, dragged down prices some 30 percent.

``If we are going to take action to help prices recover, then it's in their own interest to come along with us,'' Lukman said of the increasingly powerful non-OPEC suppliers.

``It doesn't make sense for people to produce more oil than the market needs and drive prices down,'' he said. Lukman has been chosen to serve next year as OPEC's president.

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

OPEC's daily output target is 23.2 million barrels, and it pumps about a third of the world's oil.