OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.
The news sparked a rebound in oil prices. Light, sweet crude for October delivery rose $1.00 to $104.26 a barrel in electronic trading on the New York Mercantile Exchange, but later fell back to its original price near $103.
The OPEC announcement reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30 percent off those peaks in subsequent months.
Oil prices had lost more ground Tuesday ahead of the OPEC decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1.
An OPEC statement issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in production over the established quota.
Saudi Arabia alone accounts for more than that amount of output over its official quota — all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.
OPEC overall regularly churns out oil above the organization's overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.
Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.
While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and excluding Iraq, as well as Indonesia, which used the Vienna meeting to announce it was suspending its full membership.
The statement noted that "prices had dropped significantly in recent weeks driven by a weakening world economy ... with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions." And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."
But analysts said several factors could stem any further slide in prices over the next few months.
"There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that — after a few near misses in recent weeks — further storms could savage oil installations in the Gulf of Mexico.
He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.
Others said that OPEC's concerns were well founded.
Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are (also) affected, we will see them do a cut" in December.
Oil demand from China's and India's booming economies have helped fuel oil demand and drive up prices.
Ehsan ul-Haq, head of research at JBC Energy, also said it that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world's appetite for crude by year's end.
Khelil said the request to curb overproduction was effective immediately with a 40-day window for it to take effect. And he suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil (market) stability."
At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.
Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent. Still, prices remain close to 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.