OPEC approves cutting oil production, delegates say

Friday, December 10th 2004, 9:01 am

By: News On 6

CAIRO, Egypt (AP) _ OPEC agreed Friday to reduce output by one million barrels a day in hopes of staving off further price declines without triggering a new buying frenzy, delegates said.

Saudi Oil Minister Ali Naimi said the reduction will be implemented starting Jan. 1. He told reporters the Organization of Petroleum Exporting Countries would meet again at month's end to review what effect the measure has had on prices that have fallen sharply recently while remaining high above previous established levels.

The reduction will scale back OPEC's overall production to the group's current official ceiling of 27 million barrels a day _ a figure the group had been exceeding by more than 1 million barrels a day.

Sentiment for turning down the spigots gathered momentum earlier this week when oil giant Saudi Arabia indicated it was receptive to the idea.

Al Naimi suggested OPEC was braced for some further drops in world crude prices, despite recent sharp declines.

Benchmark U.S. crude futures have fallen by almost a quarter since the record prices of more than $55 a barrel in late October. The decline has been sharpest in the last week or so, spurred by increases in U.S. petroleum inventories, mild winter weather and little sign of a slowdown in OPEC output.

``We have done everything to moderate the price,'' the Saudi minister said, alluding to overproduction in recent months. ``It is moderating and it will probably moderate more.''

Despite some pressure by other OPEC nations to raise the bar on OPEC's price band _ now at between $22 to $28 _ Al Naimi said the group decided to leave that marker unchanged for now. But he suggested the 11-nation oil producer group could decide on further cutbacks even before crude prices fall below those levels.

``We will defend (market) stability by going up or going down,'' he said.

Earlier, the London-based Al-Hayat Arab newspaper reported that if OPEC decides to cut excess production, Saudi Arabia _ responsible for most of the extra capacity _ would scale back its January output by 500,000 barrels a day.

Libyan Oil Minister Fathi bin Shatwan said some OPEC countries would be able to start cutting back overproduction right away, while for others the process would take more time.

The OPEC meeting comes amid members' concern about a possible oil glut in the second quarter of 2005 and prices that are now a quarter below their peaks above $55 a barrel.

Consuming nations, meanwhile, have called on OPEC to keep output high to underpin economic recovery.

While some quota busting will likely continue, any formal decision to lower output is expected to send at least a signal to markets that OPEC wants to defend current prices.

Apparently bolstered by OPEC plans, benchmark light, sweet crude for January delivery traded at $43.18 per barrel in electronic trading on the New York Mercantile Exchange, up 65 cents. Brent crude was fetching $40.22 on the International Petroleum Exchange, up 55 cents.

OPEC's two other options _ doing nothing, and risking continued losses, or reducing the quota target and precipitating a new oil crisis _ were clearly not appealing to members. Their decision to try and bring output down to the set level of 27 million barrels appeared to be a bid to reduce the risks both ways.

With the 10 OPEC members who subscribe to quotas pumping at least 1 million barrels a day above their target, the decision to respect quotas means they could cut back without revising without revising production ceiling targets.

In recent months OPEC's members had been pumping more than 30 million barrels a day with Iraq included. Iraq has been exempted from quotas to enable it to rebuild its economy.

But an international energy monitoring organization said Friday that because of violence and other problems in Iraq, its production fell sharply last month, dragging down total OPEC output.

Iraq produced 1.35 million barrels a day in November, down 400,000 barrels from the previous month, the International Energy Agency said. Factoring in that downturn, OPEC pumped 29.4 million barrels daily last month, it said.