VIENNA – OPEC producers on Thursday agreed a heavy cut in oil supplies to support prices already buoyed by the threat of war in the Middle East.
The Organisation of Petroleum Exporting Countries also tried to restore flagging market confidence in its discredited system of quota limits by raising official output targets.
"We've agreed to increase quotas by 1.3 million and the general agreement is to reduce overall production to the level of the new quotas and to keep prices between $22 and $28," said Algerian Oil Minister Chakib Khelil.
Ministers said the pact, for the first quarter 2003, meant they were aiming for a 1.7 million bpd, seven percent, cut in actual production.
"All of them said very strongly they will comply and they will do it," said Qatar's Oil Minister Abdullah al-Attiyah.
OPEC admits chronic quota-busting had pushed recent output three million barrels a day over its old supply target. It raised that target from 21.7 million barrels a day to 23 million bpd.
Oil prices shot up after the deal. Brent blend crude rose 50 cents in London late afternoon trade to $26.75 a barrel and U.S. light crude jumped 57 cents to $27.98 a barrel.
"The mathematics make sense," said energy analyst Michael Rothman of Merrill Lynch. "They need to deal with the reduced call on their oil after winter. They all clearly realise they sink or swim together."
Prices already were finding support from the threat of a U.S. assault on Iraq and from a general strike in Venezuela that has stalled oil exports from OPEC's number three supplier.
The deal could mean trouble for world economies struggling to reignite economic growth.
"The world economy is bumping along the bottom and OPEC is looking at its own domestic finances," said Raad Alkadiri of Washington's Petroleum Finance Corp.
Saudi Arabia's Oil Minister Ali al-Naimi said Riyadh, which initiated the new policy, would immediately inform customers of lower crude sales volumes for January.
Still, the decision met with some scepticism because observers wonder how far producers will go to turn down the taps and abide by new quotas.
"Saudi is the architect of this deal and clearly will cut but will they get the others to comply?" said consultant Gary Ross of New York's PIRA Energy.
"That's probably going to be difficult until Venezuela comes back and by then the rest may have forgotten their obligations."
"The jury is still out on the key question of reducing actual output. The big question is whether OPEC will respect quotas," said Nauman Barakat of Fimat International Banque.
OPEC has used output curbs to maintain average oil prices over the past three years in its $22-$28 target range. Saudi was worried that rising supplies from rival non-OPEC nations and another year of modest demand growth could cause a downward price spiral. OPEC is particularly vulnerable to a price fall during the second quarter when world demand eases.
Forecasts from the Paris-based International Energy Agency appeared to back the Saudi outlook. It estimates that if OPEC keeps pumping unchecked it will overwhelm world demand next year by 1.8 million barrels a day on the 77 million bpd world market, causing a huge stockbuild.