OPEC to Cut Production, Oil Prices Likely to Hold Steadyby Tim Manni
Just prior to the Organization of Petroleum Exporting Countries’ meeting yesterday, oil prices fell to nearly $103 a barrel. OPEC’s decision to reduce production by approximately 500,000 barrels a day is both a response to reduced global consumption as well as an attempt to create a bottom for oil prices, at least for now:
At a news conference after the meeting, (OPEC President Chakib) Khelil said the group was merely responding to oversupply.
“My hunch is that prices will be going down despite the decision,” Khelil said. “There is an oversupply; everybody agrees about this.”
The decision represents a rare case of OPEC’s going against the position of its biggest member, Saudi Arabia. The Saudi oil minister had said when he arrived in Vienna early Tuesday that the market was “fairly well balanced.”
“We have worked very hard since June to bring prices to where they are now,” Naimi told reporters Tuesday morning. “We have been very successful.”
According to OPEC, the group is merely maintaining production projections set set back in September of 2007. Yet, just because OPEC says they will aim to reduce daily production by a half-million barrels a day, does not mean the group will stick to those figures:
Given OPEC members’ history of frequently pumping more than their quotas, it is not certain that they will abide by the new agreement.
Ali al-Naimi, the oil minister of Saudi Arabia, which has been pumping more than its quota in recent months, left the meeting without comment. With crude oil heading down toward $100 a barrel, Saudi Arabia and other producers had suggested before the meeting here that OPEC would keep pumping at full tilt, even as some members of the cartel expressed concerns about rapidly declining prices.
Oil prices have fallen nearly 30% since they peaked at nearly $148 in July. High gas prices have led to a significant decline in US consumption. According to the International Herald Tribune, US consumption is down a million barrels a day from last year. “We should still see some decline in (gas) prices, just more slowly,” said HSH Vice President Keith Gumbinger.