Opec agrees to clamp down on oil production

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The Independent Online

OPEC, the oil producers' cartel, agreed yesterday to clamp down on its excess production, which has seen crude prices tumble by one-quarter in just six weeks.

OPEC, the oil producers' cartel, agreed yesterday to clamp down on its excess production, which has seen crude prices tumble by one-quarter in just six weeks.

The 11-nation group pledged to stick to its official quota of 27 million barrels a day from 1 January, an effective cut of as much as 1.7 million barrels off its current output.

But it brought forward the date of its next meeting to the end of next month, fuelling speculation that it plans to cut output before the expected fall in demand in the spring.

The agreement was struck after Saudi Arabia, the world's largest producer, performed a U-turn and backed proposals to tighten up supply. Ali al-Naimi, its oil minister, who earlier in the week insisted there was no need for any action, said yesterday there were signs of "disturbance" in the market as prices continued to fall.

"The reason for that is that supply is exceeding demand and that stocks are getting built globally which will affect the prices," he said. "So we need to take precautionary measures to withdraw the surplus oil."

However, the International Energy Agency, which advises Western consuming nations, said Opec's concern over a precipitous fall in prices was "somewhat overstated".

The IEA said yesterday in its monthly report: "Capacity constraints, geopolitical uncertainty and demand growth will not disappear overnight. The market is not out of the woods just yet."

The leading producers Iran and Kuwait have said Opec's 30 January meeting should consider cutting the 27 million barrels ceiling for the second-quarter period when demand is seasonally weak.

Sheikh Ahmad Fahd al-Sabah, Kuwait's energy minister, said Opec might cut quotas by 1 million barrels a day because of the slowdown. He said output cuts would start "as soon as the market gives us a chance".

Sharada Selvanathan, an economist at BNP Paribas, said Opec's members have failed to stick to the 27 million barrels limit. "This deal might just prove futile," she said. "The next meeting will give them time to see whether oil prices have declined further and if any further decisions regarding production need to be taken."

Opec stuck to its target range for oil of between $22 and $28 a barrel, despite speculation that members want it raised to $35 to reflect the fall in the dollar.

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