OPEC powerhouse Saudi Arabia yesterday said that the group would slash a record 2 million barrels from its daily production as of Jan. 1, while Russia and other OPEC outsiders announced their own cutbacks of hundreds of thousands of barrels from the market.
Saudi Oil Minister Ali Naimi said there was an OPEC consensus ahead of a formal agreement later in the day for the cut.
An official decision to pare 2 million barrels from output all at once would be a first for the organization. An OPEC reduction of that size four years ago was enacted in stages.
Oil prices rose above US$45 a barrel yesterday in anticipation of the record OPEC reduction.
By midday in Europe, light, sweet crude for January delivery was up US$1.66 to US$45.26 a barrel in electronic trading on the New York Mercantile Exchange.
Also significant would be formal support from Russia, Azerbaijan and other non-OPEC producers. Mexico, Norway and Russia slashed production in the late 1990s at a time when oil was selling for about US$10 a barrel.
Russian Deputy Prime Minister Igor Sechin and Azeri Energy Minister Natik Aliev announced cutbacks of a total of more than 600,000 barrels a day.
Still, their commitments appeared to be at least partially symbolic. The Russians indicated their reductions were already implemented last month, while Azerbaijan’s output had already been reduced by about a third due to production problems earlier this year.
Naimi first mentioned the 2 million figure in Oran on Tuesday, the eve of the oil ministers’ decision-making meeting. Yesterday he said the ministers were likely to agree “on a reduction of 2 million barrels per day from what we are doing today ... a significant cut.”
Naimi said OPEC’s cuts would be effective from Jan. 1.
“We also hope that other producers who are not in OPEC will chip in for the purpose of bringing stability to the market,” he said, in a nod to Russia, the top oil producer after the Saudis.
Sechin said: “Russian oil companies have already made a decision to cut deliveries to the market ... approximately equivalent to 350,000 barrels per day.”
In later comments he specified that his country’s cuts had already been enacted ahead of the OPEC meeting, and “if the current situation stays as it is, the actions of our companies will be continued.”
Sechin did hold out the possibility of further reductions, saying Russia was ready to pare another 320,000 barrels a day “if the current crisis remains on the global market.”
But with Russian production falling due in part to lagging investment, it was unclear whether some of the cuts simply reflected an inability to keep up present output levels.