OPEC has approved a record output cut of 2.2 million barrels a day and wants non-member oil producers Russia and Azerbaijan to make reductions of their own.
But it didn’t work.
World oil prices fell straight away; the price of New York crude oil sank to the lowest point in four and half years, dropping under $US40 US a barrel to touch $US39.88. It closed a touch over $US40 a barrel.
Combined with the cuts Russia and Azerbaijan said they were prepared to implement, the OPEC move could take about 2.8 million barrels a day out of the oil market to try and halt the slide in price.
OPEC agreed to cut 4.2 million barrels a day from the actual September 2008 11 member production of 29.045 mb/d, with effect from 1 January 2009.
"Member Countries strongly emphasizing their firm commitment to ensuring that their production is reduced by the individually agreed amounts," the statement said.
Nymex crude in New York dropped because traders don’t believe OPEC members will maintain the cuts, especially some of the financial challenged members like Nigeria. Nor do they believe non-member countries like Russia will apply cuts as well.
On London’s InterContinental Exchange (ICE), Brent North Sea crude for February slid 83 cents to 45.82 US dollars a barrel. The January contract had expired Tuesday at $US44.56.OPEC’s decision came after London trading has ended for the day.
The Paris-based International Energy Agency has said it expects global oil demand to fall this year for the first time since 1983 and OPEC officials themselves have voiced deep concern about the world’s dwindling appetite for their crude oil.
OPEC ministers called the meeting here to try and halt the slide in oil prices, which are now 70% off their high points of 147 US dollars a barrel in July, as demand dries up in recession-hit industrialised consuming nations.
Just before talks opened, non-members Russia, which attended the session, and Azerbaijan said they were ready to cut their own oil production by about 300,000 barrels a day each.
The biggest producer, Saudi Arabia has led the drive to cut output by calling for the largest production cut in the history of the group: around two million barrels a day.
The Saudis want a circuit breaker to try and arrest the rapid fall in oil that has wiped around $US103 a barrel off the global price since mid-July.
Western newsagencies reported Ali al-Naimi, Saudi Arabia’s oil minister, as saying that about 2 million barrels a day, on top of the 2 million barrel cut already agreed to over the past eight weeks, should be the result of the meeting overnight in Algeria.
Mr Naimi was quoted as saying that OPEC had already delivered 1.7 million barrels a day of cuts from that first 2 million: the Saudis have cut their output by 1.2 million barrels a day.
A feature of this OPEC meeting is the apparent move by Russia to align itself to OPEC, even though its economy is slumping into recession as export income dries up with the plunging oil and metal prices. Russia has also had to spend upwards of $US100 billion and more stabilising its banks and financial system in the past three months.
OPEC member Qatar was reported to have said that the group needed the help of non-OPEC oil producers, notably Russia, to carry out the planned cut.
"OPEC alone cannot do everything," Qatar Oil Minister Abdulla al-Attiyah was quoted by newsagencies as saying in the Mediterranean port city of Oran.
OPEC wants to see non-members slash their oil production by between 500,000 and 600,000 barrels a day. That would take the cut to around 2.6 million barrels and 4.6 million including the earlier trims.
Besides Russia, Azerbaijan Norway, Indonesia, the US and the UK are important non-OPEC producers.
Russian Deputy Prime Minister Igor Sechin said late Tuesday that Russia may slash daily oil export by up to 320,000 barrels, on top of a similar cut made in November. He’s in Algeria for the meeting.
The organisation’s official daily output target is 27.3 million barrels, but analysts say it is producing slightly more than this as some members seek to boost income. (Nigeria and Venezuela are the main culprits).
Several OPEC members heavily dependent on oil exports, notably Nigeria, Ecuador (which has defaulted on foreign loans for the third time in 14 years) and Venezuela, are being squeezed financially by the savage drop in prices from those July highs.
The organisation said in a report on Tuesday that "the growing imbalance on the oil market… presents a real challenge for all market participants and will be the main focus of discussion" at the Oran meeting.
OPEC president Chakib Khelil has said producers are "very pessimistic about demand" and that within the cartel there was unanimous support for an output cut.
In a commentary on its website OPEC said:
"As we move into the northern hemisphere winter, the news gets no better for the global economy. This is slowing down faster than expected, and, increasingly, forecasters are suggesting that oil demand will fall next year.
"The immediate outlook for oil producers is, therefore, a gloomy one.
"However, the same is true for other parties in the international oil market, as we look further into the future. Low prices mean less investment. And less investment may mean that this year’s volatility will return to the market in the not-too-distant future.
"Two distinct ways of asses
