OPEC unveils deep cuts to lift oil prices
06:28 p.m Jun 24, 1998 Eastern
By Mark Thompson
VIENNA, Austria (Reuters) - Oil cartel OPEC attacked a petroleum price
collapse by agreeing Wednesday to cut output more than expected, by
almost 5 percent.
The producers will cut crude flows by 1.355 million barrels per day
(bpd), more than doubling an earlier set of reductions agreed to in
March, Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah told reporters.
The agreement made during the summer conference of the 11-member
Organization of the Petroleum Exporting Countries would be in effect for
one year from July 1, he said.
''We took strong action because all oil producers were facing disastrous
economic consequences,'' he said at the start of a conference session
expected to ratify the measures.
Saudi Oil Minister Ali al-Naimi, who oversees the daily oil flow from
the world's leading producer and exporter, said he was extremely happy
with the agreement.
In a bullish signal, the move would lower output by kingpin Saud Arabia
almost to the eight million bpd it held for much of the 1990s.
''The deal is better than expected. Prices will eventually probably push
higher,'' said trader Nigel Saperia of Bankers Trust in London.
The agreement faced a last-minute glitch when the cartel's
second-largest producer, Iran, haggled over the size of its own cut.
After a couple of hours of discussion, Iran said it would cut by 305,000
bpd, 25,000 bpd less than it had agreed earlier in the day.
Insiders suspected the agreement was made possible at least in part by
talks Tuesday in Riyadh between Saudi's King Fahd and Iranian Foreign
Minister Kamal Kharrazi, the latest in a series of friendly contacts
between the rival Gulf oil powers.
The predicament of oil producers has been created by weak Asian demand
growth and rising Iraqi exports, fueling a glut that has hit prices and
torn holes in producer revenues.
Oil company shares have suffered and exploration and production in the
world's remoter areas has slowed.
''The situation is seriously affecting our domestic economies,
compelling us to reevaluate our development plans and trim budgets,''
said OPEC President and United Arab Emirates Petroleum and Mineral
Resources Minister Obaid bin Saif al-Nasseri.
The combined cuts including those pledged in previous reductions agreed
to in March come to 2.6 million bpd, ministers said, marking a 4.7
percent cut from the group's May output, or a cut of almost 10 percent
from February output.
U.N.-monitored oil exports from OPEC member Iraq, still subject to U.N.
sanctions for its 1990 invasion of Kuwait, are excluded from the accord.
The main contributors over both rounds of cuts were Saudi Arabia, with a
combined 725,000 bpd, and Venezuela, with a total 525,000 bpd.
Delegates said both countries had agreed to raise by 200,000 bpd the
cuts it had pledged in talks with non-member Mexico earlier this month.
That would take Saudi Arabia down to 8.023 million bpd, a sharp contrast
to the 8.76 million bpd quota it won at OPEC talks in Jakarta last year
that raised cartel output limits 10 percent.
''This agreement shows they have admitted making a serious mistake in
Jakarta,'' said Leo Drollas, of the Center for Global Energy Studies,
echoing analysts who note the 1997 decision coincided with Asia's
financial downturn.
Non-member Russia, attending as an observer, also lent support by
announcing 80,000 bpd in fresh cuts of its own. Russia is the world's
third-largest oil producer, behind Saudi Arabia and the United States.
But the cuts failed to bring traders immediate joy, with North Sea Brent
crude finishing the day 31 cents down at $13.61 a barrel.
Some dealers doubted OPEC could match words with deeds. But others said
that if producers could stand by their word they would win higher prices
further down the road.
Roger Diwan of Washington's Petroleum Finance Co. estimated that even
with some overproduction the cuts would drain world oil stocks by some
900,000 bpd in the second half of the year after a 1.3 million bpd build
in the first half.
''The adage that actions speak louder than words is all too true,'' said
OPEC's Nasseri.
Copyright 1998 Reuters Limited. |
