OPEC on Wednesday agreed on a deepest-ever net cut of 2.2 million barrels per day (bpd) as of Jan. 1, bringing the total output cut in 2008 to 4.2 million bpd, in another attempt to bolster sagging oil prices under the global economic slowdown.
Yet analysts say it still costs the Organization of Petroleum Exporting Countries (OPEC) several months and even further cuts to harvest at the level it is craving for, ruling out the possibility of a quick fix in the volatile market.
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Algerian Energy & Mines Minister and current rotating president of the Organization of Petroleum Exporting Countries (OPEC), Chakib Khelil speaks at a press conference held after the end of the meeting of the Organization of Petroleum Exporting Countries (OPEC) at a hotel in Oran, Algeria, Dec. 17, 2008. OPEC announced after its 151th extraordinary ministerial conference here that it will slash its official oil output quota by 2.2 million barrels per day (bpd) from Jan. 1 next year. [Xinhua Photo]
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Output slash without surprise
The decision made at the oil cartel's 151st extraordinary meeting in northwestern Algerian city of Oran came without surprise given the previous slump and a succession of pro-cut announcements by oil powers.
Chakib Khelil, OPEC's current rotating president, and also Algerian Minister of Energy and Mines, announced in Oran that the cartel "agreed to cut 4.2 million bpd from the actual September 2008 OPEC-11 production of 29.045 million bpd, effective of Jan. 1,2009," in light of observing "crude volumes entering the market remain well in excess of actual demand."
Over the past five months, oil prices have witnessed a steep slide in the international markets after a record high of some 147U.S. dollars per barrel in July 11.
After OPEC's announcement of cut on Wednesday, light, sweet crude for January delivery dropped to the lowest in more than four years of some 40 dollars in the New York Mercantile Exchange, while Brent North Sea crude for delivery in January stood at some 45 dollars in London's Inter Continental Exchange, shedding more than 60 percent from its zenith.
Khelil said on Dec. 6 that OPEC, which pumps nearly 40 percent of world's oil, is to cut its oil output in a "significant magnitude" in order to stem the tumbling oil prices. He reiterated on Dec. 11 that the reduction in Oran would be "severe."
OPEC Secretary General Abdalla Salem el-Badri also hinted a further oil output cut. He told Iran's Energy and Oil Information Network in Tehran on Dec. 1 that "the organization is ready to cut production by another million barrel, which is a good amount," adding that "we are all geared towards it."
The sensitive future market has been digesting the expectation of the mega cut, which was mirrored in the recent rallies after the price touched a four-year nadir of 40 dollars on Dec. 5.