Home › Forums › Refining Community › Refinery News › OPEC agrees Cut Production 1.5 MMBPD
This topic contains 1 reply, has 1 voice, and was last updated by Charles Randall 14 years, 5 months ago.
October 24, 2008 at 12:13 pm #3362
OPEC Agrees to Cut Production Quotas as Price Slumps (Update1)
By Maher Chmaytelli and Margot Habiby
Oct. 24, 2008 (Bloomberg) — The Organization of Petroleum Exporting
Countries cut oil production targets for the first time in almost
two years to stem a collapse in prices.
OPEC decided to lower supply by 1.5 million barrels a day from
November, oil ministers said today at the end of a meeting at the
group’s Vienna’s headquarters. The reduction will be from the
existing quota for 11 members of 28.8 million barrels a day.
“Demand is significantly less than what is being supplied,
that is the reason the cut was taken,” Saudi Arabian Oil Minister
Ali al-Naimi said after the meeting. Crude oil has tumbled 57
percent from a July 11 record of $147.27 a barrel as the financial
market crisis spreads, job cuts increase and fuel consumption
slows. Prices fell as much as 7.1 percent after the decision.
“OPEC has offered the market all the ammunition they had,”
said Robert Laughlin, senior broker at MF Global Ltd. in London.
“With the bearish economic outlook and manufacturing in freefall
this accord is not good enough.”
The International Energy Agency said Oct. 10 that demand among
industrialized nations will fall 2.2 percent this year, reducing
overall world demand growth to 0.5 percent.
OPEC President and Algerian Oil Minister Chakib Khelil said at
a news conference that the cut will be “100 percent effective” in
Saudi Arabia, the group’s largest producer, will reduce its
output target by 466,000 barrels a day. Iran, the second-biggest,
will cut 199,000 barrels, OPEC said in a statement. Kuwait’s share
of the reduction will be 132,000 barrels, the United Arab Emirates
134,000 barrels and Venezuela 129,000 barrels.
Another cut in December is “possible,” depending on how the
oil market reacts, Qatari Oil Minister Abdullah bin Hamad al-
Attiyah said in an interview after the decision. The producer group
is scheduled to convene in Oran, Algeria, on Dec. 17.
Addison Armstrong, director of market research at Tradition
Energy in Stamford, Connecticut, said in an interview in Vienna
that a further reduction of 500,000 barrels a day is possible.
“If prices continue to fall, they may find themselves having
to revisit deeper production cuts,” Armstrong said.
Al-Naimi said there was no need for a further cut yet.
Conversely, should prices rally again, OPEC would consider raising
production, the Saudi minister said.
Oil for December delivery dropped as much as $4.79, or 7.1
percent, to $63.05 a barrel on the New York Mercantile Exchange
after OPEC announced its decision. Crude was at $63.82 at 11:56
a.m. London time.
Saudi’s al-Naimi rejected a suggestion put forward by
Venezuela that the group re-establish a target price range. OPEC
nations use different price assumptions in their government budgets
and the group abandoned a range of $22 to $28 a barrel several
“I just wish they would say what price they want,” John
Hall, managing director of John Hall Associates Ltd., said today in
an interview in Vienna. “Is it $60, $80 or $90?”
At a meeting last month, OPEC urged greater compliance with
existing quotas, saying that would reduce supply by about 500,000
barrels a day. OPEC members excluding Iraq and Indonesia last month
pumped 390,000 barrels a day more than their combined quota of 28.8
million barrels a day, according to Bloomberg estimates.
The last time OPEC decided to slash official quotas was at a
December 2006 meeting in Abuja, Nigeria. The 500,000 barrel-a-day
cut took effect in February 2007, expanding an earlier reduction
agreed in October. The cuts were reversed later in 2007 as oil
Eleven years ago, OPEC members bickered about output quotas
as oil slid 28 percent in 10 months amid the onset of the Asian
financial crisis. At a meeting in Jakarta in November 1997, they
raised quotas, ignoring the turmoil that slowed Asian economies and
cut oil demand. Prices fell another 44 percent by December 1998 to
below $11 a barrel.
“The important thing about this meeting is that it shows they
have the resolution and cohesion to deal with the downturn in
demand and not repeat the mistake of the Asian crisis,” David
Kirsch, an industry consultant at PFC Energy said today in an
interview in Vienna.
October 24, 2008 at 12:18 pm #6500
Looks like the Saudi’s caved in to 1.5 million Bbl cut. My version confirms Saudi’s took -466k, Iran took -199k, and Venezuela took -129k and Kuwait took -132k. Claim is they will reduce another 500k if needed. All others tried to push for price target (which was probably in the $75-90/Bbl range Iran, Russia & Venezuela need) which may have been reason for the Saudi go-along on the volume cut.
Don’t think this will be any more effective than last months -500k cut …. after they totaled all cuts up there was actually a +390k increase instead cut. These idiots have not realized that the Saudi’s have no intention of making up their cuts + increase they really do …… at least not until market prices drop below the Saudi’s budget numbers of $30-40/Bbl.
The recent Oil finds/New supplies will make any this years OPEC cuts moot : like Mexican Senate passing Bill on Oil Reform / outside private participation (even weak as it is can always be improved – the breach was the important move), plus the BIG field finds by Petrobras, MacMoRan big offshore find, US large Brakken oilfield developments & all new Canadian Bitumen P/L supplies at time when China has really pulled back on consumption is going to really drop demand & keep prices to pre-speculation ranges for while.
The real hurt has to be Oil Co’s LIFO & Reserve revaluation at EOY….. it’s going make Upstream & Integrated Oil Companies artificially low for first of 2009 year & that is reason I think more merger & consolidation is likely to happen in US with its low economic conditions and heck of “buy opportunity” for other companies reserves (just not in $6/Bbl range this time but heck of lot cheaper than the $18-40/Bbl conventional & $40-80/Bbl non-conventional & deepwater conventional crude replacement values they would have to find). Companies with LT views should really make some strategic reserve purchases this time (not just do the cheap refining asset purchase like Tosco/Phillips and Valero did previously).
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