The cartel of the world's largest oil-producing countries agreed yesterday to cut supply by 1.5 million barrels per day (bpd), to try to slow an oil price collapse "unprecedented in speed and magnitude" – but the market kept falling anyway. The reduction was agreed at an emergency meeting of the Organisation of Petroleum Exporting Countries (Opec) in Vienna, convened to discuss the oil price's slump of more then 50 per cent from July's $147-per-barrel high.
But after a week when the price dipped below $70 for the first time since August 2007, even the promised restriction failed to stabilise a market gripped by panic over the impact of global rec-ession. By mid-afternoon, Brent crude for November delivery was down by more than $3 at around $63, and West Texas Intermediate for December was down by more than $3 at around $65.
Even before the non-event of yesterday's cuts, the whiff of panic from Opec was becoming a fog. "Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude," the group's statement about the production cuts said. "[They are] falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage."
The group is also calling on non-Opec producers to do their bit "to restore prices to reasonable levels and eliminate harmful and unnecessary fluctuations" – simultaneously publishing details of a meeting this week between its secretary general, Abdalla Salem El-Badri, and Dmitry Medvedev, the president of Russia, which is not a member of the cartel despite being the world's second-largest producer. At the meeting, Mr Medvedev "highlighted the Russian readiness for a continuous and comprehensive dialogue with Opec, for the purpose of achieving stable and predictable oil markets", the statement said.
The desire to hold up the price is not simply greed. Some Opec members rely heavily on oil revenues to sustain their national budgets and are far more exposed to oil income fluctuations than those simply pouring the excess into sovereign wealth funds.
John Waterlow, an analyst at Wood McKenzie, said: "Different producers across Opec will have different thresholds of pain. Iran has a high population and needs oil revenues more than Saudi Arabia or United Arab Emirates."
Meanwhile, the top four UK supermarkets are in a petrol price war. Asda announced yesterday that it is freezing prices for 10 days. Sainsbury's and Tesco cut their prices by 3p per litre this week, Morrisons by 2p per litre.Reuse content