Vienna, Dec. 12 (Reuters): The Organisation of Petroleum Exporting Countries (Opec) on Thursday agreed to cut back oil production and restore its discredited system of quotas by raising formal production limits to help support crude prices.
Algerian oil minister Chakib Khelil said the cartel had raised official quotas, effective January 1, from 21.7 million barrels per day (BPD) to 23 million BPD.
“We’ve agreed to increase quotas by 1.3 million and the general agreement is to reduce overall production to the level of the new quotas and to keep prices between $ 22 and $ 28,” said Khelil.
Kuwaiti oil minister Sheikh Ahmad al-Fahd al-Sabah said the agreement meant the cartel will aim to cut actual production by 1.5-1.7 million BPD.
“All of them said very strongly they will comply and they will do it,” said Qatari oil minister Abdullah al-Attiyah.
Chronic quota-busting means real Opec output has been running at some 3 million BPD over the group’s formal supply target.
The new pact is for the first quarter. Opec’s next meeting is at the end of March.
“The main point is to cut output in time for the second quarter,” said a Gulf official familiar with Saudi policy.
The decision met with scepticism on world oil markets because dealers wonder how far producers will go to turn down the taps and abide by new quotas.
“Saudi is the architect of this deal and clearly will cut. But will they get the others to comply'” said consultant Gary Ross of New York's PIRA Energy.
“That’s probably going to be difficult until Venezuela comes back and by then the rest may have forgotten their obligations.”
Brent blend crude rose 40 cents in London Thursday afternoon trade to $ 26.63 a barrel and US light crude rose 44 cents to $ 27.86 a barrel.
Despite heavy cheating, oil prices are high because of the threat of a US assault on Iraq and a general strike in Venezuela, now in its 11th day, that has stalled oil exports from Opec’s number three supplier.
Opec has used output curbs to maintain average oil prices over the past three years in its $ 22 to $ 28 target range. Saudi was worried that rising supplies from rival non-Opec nations and another year of modest demand growth could cause a downward price spiral. Opec is particularly vulnerable to a price fall during the second quarter when demand eases.
Forecasts from the Paris-based International Energy Agency appeared to back the Saudi outlook. It estimates that if Opec keeps pumping unchecked it will overwhelm world demand next year by 1.8 million BPD on the 77 million BPD world market, causing a huge stock-build.