Six OPEC members, including Saudi Arabia, cut oil output by a total of 1 million barrels a day in an effort to revive prices that lost a quarter of their value in recent months, a spokesman for the group said.
The agreed cut, which represents a 3.4 percent reduction from OPEC's September total, has "already happened," Levi Ajuonuma said in a phone interview in Nigeria Sunday. The cutbacks, which include pledges made by Venezuela and Nigeria late last month to cut sales by a total of 170,000 barrels a day, are "voluntary," he said.
Crude oil futures declined 5% last week to $59.76 a barrel and are down 24% from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and fuel stockpiles rose.
The Organization of Petroleum Exporting Countries, which pumps 40% of the world's crude, agreed at a meeting on September 11 to leave a production quota for 10 of its members unchanged at 28 million barrels a day. Since the meeting, the group's so-called basket oil price dropped 9.3% to $55.07 a barrel. Iraq isn't subject to quotas.
The 11-member group normally increases production ahead of the peak demand period during the Northern Hemisphere winter.
"Not only is the price level important, but the precipitous nature of the oil price decline is an important factor behind OPEC action this time," said Brad Bourland, chief economist for Samba Financial Group, Saudi Arabia's second-largest publicly traded bank by market value.
"OPEC does not have a stated price target at the moment, but it is becoming clear that the organization will act to support a price between $50 and $60 a barrel." The oil exporters group regulates supply through a production quota system, which applies to all members except Iraq. The quota last changed in July 2005 when it was raised by 500,000 barrels a day to 28 million barrels a day.
Saudi Arabia, Venezuela and Nigeria are joined in the group of six by Kuwait, Libya and Algeria, Ajuonuma said. OPEC may announce Monday whether it plans to hold an emergency meeting to ratify the informal agreement, he said. The group is next scheduled to meet in Abuja, Nigeria on December 14.
Iran, the group's second-largest producer, said it would back the output cut, according to a statement by Kazem Vaziri-Hamaneh, the country's Oil Minister, carried on the state-run Islamic Republic News Agency Web site Sunday.
"Iran supports any kind of OPEC production cut," he said. He did not confirm whether the Islamic Republic would join the cut. (Bloomberg)