OPEC agrees to cut crude output by 1 million barrels a day
LONDON (AP) – Moving quickly to buttress sagging crude oil prices, OPEC announced Wednesday it would cut output by 1 million barrels a day, or 4 percent of its official target level.
The decision by all 11 members of the Organization of the Petroleum Exporting Countries is aimed at supporting prices at around $25 a barrel in the face of eroding demand in the group’s key markets in the United States, Europe and Asia. The cut is to take effect Sept. 1.
Energy analysts said the move would indeed shore up prices, but not to the point of causing serious pain for consumers in importing countries.
”You will see a temporary rally,” said Edward Ennis of SG Securities in London. ”It will not stop the decline in crude price.”
OPEC, which pumps about 40 percent of the world’s oil, will have a new production target of 23.2 million barrels a day. It had already reduced its official production twice this year by a total of 2.5 million barrels a day.
Ministers announced the latest output cut in a terse communique after conferring privately by telephone. Their highly unusual method of reaching a consensus by phone instead of at a formal meeting attests to the urgency with which they view current market conditions.
”Considering the impact of the slowing world economy on oil demand, and the relatively strong build-up of oil stocks (inventories), OPEC’s objectives are to ensure market stability, satisfy world demand and avoid oil price volatility, in the interest of both producers and consumers,” the communique said.
Their decision means the ministers probably won’t meet in early August as they had been mulling. However, they would retain the option of holding ”an extraordinary meeting soon if the market warrants it,” the communique said.
President Bush responded to the announcement saying he agreed on the need for a ”stable and predictable” energy market. But he also warned OPEC against trying to gouge consumers at a time of economic fragility.
”Obviously if it’s an attempt to run up the price of oil, we’ll make our opinions very clear and known that that would hurt America and hurt the marketplace,” Bush said in Washington.
Crude prices have slid lower since OPEC ministers agreed to hold output steady at their last meeting on July 3.
OPEC’s benchmark – the average price for a so-called basket of seven crudes – was $23.46 a barrel Tuesday, the most recent day for which the group compiled information. OPEC’s basket price slipped from $25 a barrel on July 6 to a low for the month of $22.64 last Wednesday
The cartel is anxious to keep its benchmark price at no less than $25 a barrel.
Demand for crude typically intensifies in the autumn, as refiners stock up to process into heating oil for sale in the winter.
September contracts of North Sea Brent crude jumped 46 cents on OPEC’s announcement to a high for the day of $25.36 a barrel, on the International Petroleum Exchange in London.
Light, sweet crude for September delivery rose by 51 cents to $26.82 in trading on the New York Mercantile Exchange.
Saudi Arabia, OPEC’s most powerful member, was among those initially backing a cut of 1 million daily barrels. Iran, the cartel’s second-largest producer, and No. 3 Venezuela declared their support later in the day, said a source at OPEC headquarters in Vienna, Austria.
Ennis of SG Securities said the risk of a further weakening in global demand remains a concern.
”The issue of demand growth doesn’t disappear with a cut of 1 million barrels,” he said, adding that he foresees the Brent crude price settling to $25 by the fourth quarter of the year.
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