OPEC Poised to Reduce Oil Output
LONDON – OPEC was expected to trigger a 6 percent cut in its official crude oil output after Russia, relenting to intense pressure, agreed to reduce its production by 150,000 barrels a day to help prop up sagging oil prices.
Russia's decision Wednesday ended a showdown with the Organization of Petroleum Exporting Countries that threatened to unleash a potentially devastating price war for crude. One energy analyst forecast that the overall decrease in oil output would nudge gasoline prices higher but said he expected the rise would be modest.
"It's a very positive move in the right direction," said Kuwaiti Oil Minister Adel al-Sabeeh.
Oil futures surged almost $1 higher on the news, then fell back as skepticism grew about Russia's resolve to honor its commitment.
OPEC was preparing to issue a communique Thursday announcing it would proceed with cuts of 1.5 million barrels a day in its own production, said an OPEC official, speaking on condition of anonymity from the group's headquarters in Vienna, Austria. The group's secretary-general, Ali Rodriguez, was conferring with OPEC oil ministers to agree on the document's wording, the official said.
After the decision in Russia, attention shifted to Norway, the world's third-largest exporter of oil behind Saudi Arabia and Russia. OPEC has asked Norway for similar cuts.
A firm commitment from Norway, together with the pledge from Russia, would come very close to satisfying OPEC's demand that oil-producing countries outside the group cooperate with its plan to reduce its own production by 1.5 million barrels a day, or 6 percent. OPEC supplies about a third of the world's oil.
"I think it makes triggering the OPEC cuts a near certainty," said George Beranek of The Petroleum Finance Co., a Washington consultancy.
"That's going to mean, over time, higher crude prices, which will be reflected in higher refined product prices," he said.
However, energy analysts noted that U.S. inventories of gasoline and other refined products are plentiful. "I really don't think we have to worry about a return to last spring's very high gasoline prices," Beranek said.
In an unusual act of diplomatic brinksmanship, OPEC insisted last month that non-OPEC producers promise to trim their output by a total of 500,000 barrels a day before it would put its own cuts into effect Jan. 1. Russia's turnaround appeared to vindicate OPEC's tough stance.
Russia, the world's No. 3 oil producer, had said for weeks it would cut output by just 50,000 barrels a day. By agreeing Wednesday to triple the size of that cut, Russian oil companies appeared to acknowledge that OPEC members were probably better equipped than they to weather a collapse in prices caused by a potential glut in crude supplies.
Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London, suggested that Russia might simply be making a virtue out of necessity.
"Russian exports always decrease at this time of year, as seasonal demand increases for their internal market," he said.
The OPEC official in Vienna welcomed Russia's announcement and said it would go a long way toward meeting the cartel's insistence that independent producers make sizable production cuts.
"Of course, we have to wait to see the final decision of the Norwegian government," the official said.
OPEC wants Norway to pare at least 150,000 barrels from its daily production, the official said. Norway has so far offered broadly to cut output by 100,000-200,000 barrels a day.
Mexico, another leading non-OPEC supplier, has already pledged to pump 100,000 fewer barrels a day, while Oman promises to cut output by 40,000 barrels.
OPEC is hoping for an additional cut of 40,000 barrels from Angola — enough to take the total cut in non-OPEC production to 480,000 barrels a day. The Angolan oil minister said Tuesday that his country would cooperate with OPEC but did not specify the size of any reduction, the OPEC official said.
Russia's about-face lifted contracts of Brent crude for January delivery 96 cents higher to $20.25 a barrel in early trading on the International Petroleum Exchange in London. But as skepticism over Russia's resolved crept into the market, Brent futures reversed course, settling at $19.22, down 7 cents.
On the New York Mercantile Exchange, January contracts of light, sweet crude fell 16 cents to $19.49 a barrel, after jumping as much as 65 cents early in the day.
OPEC's benchmark of crude prices averaged $18.20 a barrel Tuesday, up from $18.12 Monday.
OPEC has a daily production target of 23.2 million barrels and aims to maintain a benchmark price between $22-$28 per barrel. The cartel has already curtailed its official output this year by 3.5 million barrels a day without a meaningful contribution from non-OPEC producers.
Saudia Arabia is OPEC's leading producer, with about 7.6 million barrels of oil per day.
Russia produces a total of 7.2 million barrels of oil a day.