news Opec cuts oil production to record level

**lift365** · #1 12-17-2008

OPEC makes largest output cut in its history 4.2 million a day
The Organization of the Petroleum Exporting Countries agreed on Wednesday to make its deepest output cut ever to counter slumping demand and falling oil prices.

The group's Secretary-General Abdullah al-Badri said the 4.2 million-barrels-per-day reduction in supplies is based on September production levels.More to come.In an attempt to prop up oil prices, OPEC ministers are expected to agree
on the biggest cut in oil production in its history.

ORAN, ALGERIA (DECEMBER 17, 2008) REUTERS -
OPEC oil ministers, who started their meeting on Wednesday (December
17) in the Algerian city of Oran, are expected to decide to remove a record
4.2 million barrels per day from oil markets as they race to balance supply
with the world's collapsing demand for fuel, and prop up sliding oil
prices.

Oil prices have dropped more than 100 US Dollars from a July peak price
of above 147 US Dollars a barrel.
Saudi Arabia, the world's biggest oil exporter, has led by example --
reducing supplies to customers even before a cut has been agreed to help push
prices back towards the 75 US Dollars level Saudi King Abdullah has identified
as "fair".

Ali al-Naimi, the kingdom's oil minister, was first to publicly call
for curbs of two million on his arrival to Algeria on Tuesday (December 16).

That figure was swiftly endorsed by others in the group that pumps more
than a third of the world's oil.

An OPEC delegate told Reuters there was consensus for a cut of that
magnitude starting from January 1.

The expected cut, the third this year, would bring a total reduction in
OPEC supply to four million barrels per day (bpd), nearly a five percent cut
in world oil supplies.

An oil price below 50 US Dollars is uncomfortable for all in OPEC, but
especially for Venezuela and Iran which are dependent on higher prices to fund
ambitious domestic programmes.

On Wednesday, oil was trading slightly firmer than previous few days,
just above 44 US Dollars a barrel.

While a limited recovery in prices would put a bit more strain on a
recessionary global economy, it may help pull the world back from the brink of
deflation -- a growing source of concern, analysts said.

Russia, the biggest non-OPEC oil exporter, and several other non-OPEC
producers, are also attending the meeting as observers.

"Oil companies, including Russian oil companies have to act in
accordance with concrete market environment. For the Russian oil industry, the
current situation is quite dramatic in terms of pricing, therefore Russian oil
companies have already made the decision to cut deliveries to the market, and
in the month of November only, the cuts amounted to 1.5 million tons of oil.
That is approximately equivalent to 350,000 barrels per day. Therefore, we
have to respond to the current market situation. If those market parameters
are maintained in the future, oil companies most probably will have to respond
appropriately and will further cut the deliveries," Russian Deputy Prime
Minister Igor Sechin, who is heading the Russian delegation, told reporters at
the beginning of the meeting.

The expected OPEC cut, the third this year, would bring a total
reduction in OPEC supply to four million bpd, nearly a five percent cut in
world oil supplies.

The non-OPEC countries have signalled they would support OPEC's
decision and are expected to cut up to 600,000 bpd in accord with the producer
group. Russia, the biggest non-OPEC oil exporter, may contribute about half
that volume.

Azerbaijan said it could also contribute to any OPEC decision but
Mexico in a statement on production plans made no offer to cut output.
Mexico, Russia and Norway worked with OPEC in 1999 to revive prices
that had fallen below 10 US Dollars a barrel and again in late 2001 to pull
prices back above 20 US Dollars a barrel.

But output from non-OPEC producers is declining and proclamations of
cuts served to mask the effect of ageing fields and a lack of investment,
analysts said.OPEC oil ministers agreed Wednesday to remove a record 2.2 million barrels per day from oil markets in a race to balance supply with the world's rapidly crumbling demand for fuel.

The 12 members of the Organization of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel.

The cut comes on top of existing reductions of 2 million bpd agreed by OPEC at its last two meetings. It lowers the group's supply target to 24.845 million bpd.

Oil showed little reaction to the deal reached after four hours of talks, with prices trading just above $43 a barrel.

Saudi Arabia, the world's biggest oil exporter, has led by example -- reducing supplies to customers even before a cut has been agreed to help push prices back toward the $75 level Saudi King Abdullah has identified as "fair."

Ali al-Naimi, the kingdom's oil minister, was first to publicly call for curbs of 2 million bpd ahead of the meeting.

"The purpose of the cut is to bring the market into balance and avoid the gyrations of the price," he said. "The cut may lead to higher prices or may not."

Others in the group that pumps more than a third of the world's oil said at least two million barrels needed to go from daily output to prevent a massive build in inventories.

"A minimum of two million we think needs to be cut so we can balance the market," Iraqi Oil Minister Hussain al-Shahristani told Reuters.

The cut, the third this year, brings a total reduction in OPEC supply to 4.2 million bpd, nearly a five percent cut in world oil supplies.

OPEC has encouraged other producers to cut back, too. Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge.

Leading a high level delegation, Russia's Deputy Prime Minister Igor Sechin said in a speech to OPEC that Moscow did not plan to join in co-ordinated output cuts and did not want to join the group.

Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programs.

It is hoped that a sharp supply cut will put oil on the path toward $75.

"Therefore we believe that $75 is probably more conducive to marginal producers to continue so we don't have a shortage in the market and we avoid the future sky-rocketing of prices."

Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation -- a growing source of concern.

The influential Saudi oil minister clearly outlined the kingdom's route to lower production.

It is pumping 8.2 million bpd against 9.7 million bpd in August.

"The difference is 1.5 million barrels per day -- that is what we've done," Naimi said.

Saudi Arabia's implied output target is about 8.477 million bpd under existing OPEC curbs.

To have a lasting price impact, any OPEC deal must to be strictly observed.

According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.

Analysts said deeper cuts would further test discipline in the group. That restraint would be needed to slim down growing world oil stocks.

A slump in consumption has lifted oil inventories in OECD industrialized nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.
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