Opec will take one million barrels of oil a day off oversupplied world markets as soon as possible with its first output cut in more than two years, Opec officials said on Thursday, sending oil prices back above $60.
The world's biggest oil exporter Saudi Arabia will shoulder most of the burden as Opec moves to address a 23 percent drop in prices since July 14 and fuel stocks at a 7-year high in top consumer the United States, a senior Opec delegate told Reuters.
The organisation that pumps over a third of the world's oil will curb supplies by just over 3 percent. It may make deeper cuts at its meeting on December 14 in Abuja, another official said. "The goal now is to cut actual oil production by 1 million barrels daily as soon as possible but the exact date is still being worked out," the senior Opec delegate told Reuters.
The United States was dismayed by the news. Energy Secretary Sam Bodman said he would tell Opec ministers the world still needed all the oil Opec could pump heading into winter. He said $60 a barrel oil was profitable for producers. "We still need oil for sure. We still need all the oil we can get," Bodman told Reuters in a telephone interview.
Nine Opec countries will take part in the supply curbs and will cut their "fair share" from overall Opec production, the senior delegate said. Opec pumped 29.47 million bpd in September, according to a Reuters survey.
Only Iraq, exempt from quotas, and Indonesia, a net importer, will not participate, he added. All of this could pave the way for a realignment of Opec quotas, and tricky negotiations, at Opec's December meeting. Opec President Edmund Daukoru declined to be drawn on the scale of planned cuts but said a reduction of 1 million barrels per day would be in line with market fundamentals.
SAUDI ARABIA LEADS WAY: Saudi Arabia will reduce its production by 300,000 bpd from September's 9.1 million bpd, the delegate said, taking the kingdom's production to its lowest since May 2004. The news contradicts a Financial Times report that Saudi Arabia, Opec's most influential member, was opposed to curbing supplies.
This will be Opec's first output cut since April 2004. The group last changed its ceiling in July 2005 with a 500,000 bpd increase in response to rising demand from the United States and China's fast-growing economy and a seemingly relentless rise in the price of oil.
But the situation has changed in recent months with a stumbling US economy and a rapid descent in the US oil price from its $78.40 peak in mid-July. Opec delegates said the organisation's primary concern was the high level of global fuel stocks.
"Opec is closely watching developments in oil markets, especially crude stocks, which we've seen rising gradually. This might create further pressure in the market," the delegate said.
"Opec is concerned about prices but the most important thing they are concentrating on are inventory levels." Analysts have expected Opec to cut output for some time, especially after Nigeria, which holds the Opec presidency, and Venezuela said last week they were making unilateral reductions.
Kuwait, one of Opec's core Gulf members, added impetus on Wednesday by stating its readiness to join in the reductions if necessary. "The marketing departments of these countries are finding it difficult to move their oil. And high global inventories are of grave concern," said Gary Ross of New York's PIRA Energy.
"At the end of the day, Opec members are trying to protect their revenue and, in turn, the oil price." Opec will have plenty of time to measure the impact of its action before its next ministerial meeting in Abuja on December 14.