Published January 13, 2015
After more than a month of uncertainty, OPEC confirmed Friday it would slash 1.5 million barrels a day from its daily crude production in an effort to firm up sagging oil prices.
Oil ministers from the Organization of Petroleum Exporting Countries agreed in an emergency meeting to cut their official output by 6 percent beginning Jan. 1. The cuts are to last for at least six months, OPEC officials told a news conference.
OPEC decided to proceed with the cuts even though rival, independent producers such as Russia and Norway promised reciprocal cuts that were smaller than expected. OPEC, which has already reduced its official production by 3.5 million barrels a day this year, is weary of doing so only to see producers outside the group increase their market share as a result.
The issue came to a head this autumn as the weakening world economy, together with the uncertainty caused by the Sept. 11 attacks on the United States, dragged down prices some 30 percent.
Prior to the formal announcement of the cut Friday, oil markets had given mixed signals as OPEC was putting the final touches on the production cut it agreed to last month.
The price of Brent crude contracts for February delivery rose 29 cents to $20.63 a barrel, after jumping by $1 Thursday on the International Petroleum Exchange in London. February contracts of light, sweet crude fell 37 cents Thursday to $20.90 on the New York Mercantile Exchange.
OPEC's benchmark crude price averaged $18.68 a barrel Thursday, the most recent day for which information was compiled.
Rilwanu Lukman, Nigeria's presidential adviser on petroleum, said the cut would be "more than enough" to lift OPEC's benchmark price to $22 a barrel -- the group's minimum target price.
However, some member countries questioned whether the combined reduction in OPEC and non-OPEC supplies would be sufficient to restore OPEC's benchmark to its desired range of $22 to $28 a barrel.
"We hope that prices will stabilize within reasonable limits, meaning between $20 and $25 (a barrel). This is what is expected now," Saudi Arabian Oil Minister Al Naimi told reporters just before the meeting began.
"But nothing guarantees the stability of a certain price because the price, at the end of the day, is determined by market mechanisms," he said. Saudi Arabia is OPEC's largest and most influential member.
Although OPEC agreed in November to reduce production, it made its decision conditional on a reciprocal decrease of 500,000 barrels a day in output from major oil producers outside the group. Its leaders worked hard to persuade Russia, in particular, to make significant cuts, to the point of issuing veiled threats about triggering a price war if Russian companies refused to cooperate.
"If we are going to take action to help prices recover, then it's in their own interest to come along with us," said Lukman, who has been chosen to serve next year as OPEC's president. "It doesn't make sense for people to produce more oil than the market needs and drive prices down."
Non-OPEC producers have so far promised to cut by a total of 462,500 barrels a day -- 37,500 barrels shy of what OPEC had asked for. The group decided not to let this discrepancy hold it back from putting its own cuts into effect.
Among non-OPEC members, Norway and Russia have each pledged to decrease daily supplies by 150,000 barrels, while Mexico has promised to reduce by 100,000 barrels, Oman by 40,000 barrels and Angola by 22,500 barrels.
OPEC's current daily target is 23.2 million barrels, and it pumps about a third of the world's oil.