24 October 2008

Opec to discuss oil output cuts

BBC News, 24 October 2008 02:29 UK

Worker checks over oil pumps in Iran, file pic

Opec is widely expected to cut production after the meeting

The oil producers' cartel Opec is holding an emergency meeting in Vienna to discuss possible production cuts as it tries to shore up falling prices.

The meeting, originally planned for November, was brought forward due to growing concerns about the impact of the financial crisis on the oil market.

Oil prices have fallen to a 16-month low amid fears a global economic recession will cut demand.

Thursday saw a mild market recovery as hopes rose that Opec would cut output.

US light crude rose by more than $1.60 to nearly $70 a barrel, having earlier dropped to $66.20 a barrel - its lowest level since June 2007.

Oil prices hit an all-time high of $147 a barrel in July, but have since fallen back steadily.

Downward trend

A number of the cartel's 12 members say output should be reduced to stop the fall in prices: Venezuela wants production to be cut by a million barrels a day - 3% of Opec's total output. Iran has called for a cut twice that size.

The two countries are thought to be most in need of a relatively high oil price - around $100 a barrel - to finance government spending, says the BBC's economics correspondent, Andrew Walker.

Saudi Oil Minister Ali al-Naimi (image from May 2008)

Ali al-Naimi said oil prices would be determined by the market

Iran relies almost entirely on its oil exports for government revenue: for every dollar off the price of a barrel of oil, the country loses roughly $1bn a year in revenue.

But on Thursday, Saudi Oil Minister Ali al-Naimi would not be drawn on the subject of a possible output reduction, saying the price of oil would be determined by the market.

Opec's biggest oil producer, Saudi Arabia may be wary of aggravating economic problems in oil importing countries, our correspondent adds. Nor does it want to see high prices that might encourage users to switch away from oil to alternative energy sources.

Opec president Chakib Khelil said: "The decision should not leave the producer countries in the situation where they will be joining the group of countries which are already suffering from the financial crisis."

Despite Opec's expected output reduction, oil analysts said crude prices could fall as low as $60 a barrel, as signs that the world is heading for a recession continue to grow.

The cartel is reluctant to let the price drop below $70 a barrel.


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