CAIRO, Egypt – OPEC (search) agreed Friday to reduce output to target production levels early next year, delegates said, in hopes of staving off further declines in the world price without triggering a new buying frenzy.
The Organization of Petroleum Exporting Countries still has to officially approve the decision. But delegates to the group's formal meeting Friday said that consent was just a formality.
If implemented, the 10 OPEC members bound by quotas would pump about 1 million barrels a day less than they currently are to scale back to the group's overall ceiling of 27 million barrels a day.
Asked when the cut in overproduction would start, Kuwait's Sheik Ahmad Fahad Al-Ahmad Al-Sabah said: "Everyone has committed for next month, maybe to start from February."
He said all OPEC members were committed to full compliance with the current total production ceiling of 27 million barrels a day and taking excess oil off the market.
Al-Sabah estimated OPEC's overproduction at around 1.7 million barrels a day. Other ministers have put it at 1.1 million barrels. Iran's Oil Minister Bijan Namdar Zangeneh said a cut of about 1 million barrels a day was to be discussed at the formal policy talks later Friday.
Kuwait's Al-Sabah said OPEC would likely meet again in early February to "follow up on the situation of the market."
Sentiment for turning down the spigots gathered momentum earlier this week when oil giant Saudi Arabia indicated it was receptive to the idea.
In comments published Friday, its oil minister, Ali Naimi, told the London-based Arab newspaper Al-Hayat that he supports cutting production by 1 million barrels a day.
"It's important that we stop the collapse of oil prices," Naimi told the paper. Al-Hayat reported that if OPEC decides to cut overproduction, Saudi Arabia would cut its January production by 500,000 barrels a day.
Libyan Oil Minister Fathi bin Shatwan, meanwhile, said some OPEC countries would be able to start cutting back overproduction right away, while for others the process would take more time.
The OPEC meeting comes amid members' concern about a possible oil glut in the second quarter of 2005 and prices that are now a quarter below their peaks above $55 a barrel.
Consuming nations, meanwhile, have called on OPEC to keep output high to underpin economic recovery.
While some quota busting will likely continue, any formal decision to lower output is expected to send at least a signal to markets that OPEC wants to defend current prices.
Apparently bolstered by OPEC plans, benchmark light, sweet crude for January delivery was trading at $42.94 per barrel on the New York Mercantile Exchange in electronic trade, up 41 cents from its overnight closing price. Brent crude was fetching $40.33 on the International Petroleum Exchange, up 52 cents.
OPEC's two other options - doing nothing, and risking continued losses, or reducing the quota target and precipitating a new oil crisis - were clearly not appealing to members. Their decision to try and bring output down to the set level of 27 million barrels appeared to be a bid to reduce the risks both ways.
With the 10 OPEC members who subscribe to quotas pumping at least 1 million barrels a day above their target, the decision to respect quotas means they could cut back without revising production ceiling targets.
In recent months OPEC's had been pumping more than 30 million barrels a day with Iraq included. Iraq has been exempted from quotas to enable it to rebuild its economy.
But an international energy monitoring organization said Friday that because of violence and other problems in Iraq, its production fell sharply last month, dragging down total OPEC output.
Iraq produced 1.35 million barrels a day in November, down 400,000 barrels from the previous month, the International Energy Agency said. Factoring in that downturn, OPEC pumped 29.4 million barrels daily last month, it said.
Benchmark U.S. crude futures have fallen by almost a quarter since the record prices of more than $55 a barrel in late October. The decline has been sharpest in the last week or so, spurred by increases in U.S. petroleum inventories, mild winter weather, and little sign of a slowdown in OPEC output.
The recent fall in prices reflects replenished stocks, slowing economies, high production by both OPEC and non-OPEC countries, a relatively mild Northern Hemisphere winter, and less of the speculative futures buying that led oil to settle at $55.17 twice in October.