By Jason Simpkins
Despite earlier pledges to hold oil output steady, the Organization of Petroleum Exporting Countries (OPEC) yesterday (Wednesday) announced that it would cut production by 520,000 barrels per day in an effort to "strictly comply" with the production quotas set last September. However, Saudi Arabia, the cartel's largest and most influential member has indicated otherwise.
The cartel, which controls 40% of the world's oil exports, pointed to such factors as tumbling demand, greater supply, the dollar's recent rally and an easing of political tensions – all of which have contributed to a 30% drop in oil prices over the past nine weeks.
"All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook," OPEC said in a statement.
In its monthly report, released today, the International Energy Agency lowered its 2008 forecast by 100,000 barrels to 86.8 million barrels a day, and the 2009 estimate by 140,000 barrels to 87.6 million barrels a day.
Still, the cut in production contrasts sharply with statements made by Saudi Oil Minister Ali al-Naimi prior to the meeting. And, according to the New York Times, Saudi officials have made it clear that they will not curtail production regardless of what the cartel says publicly.
"The Saudis made their strategy clear in informal talks and briefings with oil industry analysts and reporters, but as is their custom they would not speak for attribution because they did not want to appear to undermine a collective decision by OPEC that they endorsed publicly," the NY Times said in an article on its website yesterday.
Saudi Arabia is responsible for most of the surplus oil production currently on the market, as the country acted unilaterally to boost its output by 500,000 barrels per day when oil prices soared uncontrollably in the first half of the year. Riyadh was very concerned that prices higher than $100 a barrel could erode demand in many of its most reliable markets, including the United States.
"We have worked very hard since June's meeting to bring prices to where they are now," al-Naimi told reporters Tuesday. "I think everything is in balance – inventories are in a healthy position."
OPEC is pumping approximately 2.18 million barrels a day more than it was in 2007. Saudi Arabia is currently producing about 9.5 million barrels of oil a day, 600,000 barrels a day more than its official OPEC quota.
Light, sweet crude for October delivery fell 24 cents yesterday to settle at $103.02 a barrel on the New York Mercantile Exchange.
News and Related Story Links:
- Times Online:
Oil falls back towards $100 despite Opec cuts
- Money Morning:
OPEC to Hold Output Steady Despite Oil Price Plunge
- Money Morning:
With OPEC Meeting Looming, and Emerging Markets Growing, Oil Prices May Only be Temporary