OPEC threatens to cut crude oil production

Bruce Stanley and Bruce Stanley

LONDON – OPEC is poised to trigger a 6 percent cut in its official crude oil output after Russia, relenting to intense pressure, agreed to reduce its production by 150,000 barrels a day to help prop up sagging oil prices.

Russia’s decision yesterday ended a showdown with the Organization of Petroleum Exporting Countries that threatened to unleash a price war for crude. One energy analyst forecast that the overall decrease in oil output would nudge gasoline prices higher but said he expected the rise would be modest.

“It’s a very positive move in the right direction,” said Kuwaiti Oil Minister Adel al-Sabeeh.

Oil futures surged almost $1 higher on the news, then fell back as skepticism grew about Russia’s resolve to honor its commitment.

OPEC was preparing to issue a communique today announcing it would proceed with cuts of 1.5 million barrels a day in its own production, said an official from the group’s headquarters in Vienna, Austria.

After the decision in Russia, attention shifted to Norway, the world’s third-largest exporter of oil behind Saudi Arabia and Russia. OPEC has asked Norway for similar cuts.

A firm commitment from Norway, together with the pledge from Russia, would come very close to satisfying OPEC’s demand that oil-producing countries outside the group cooperate with its plan to reduce its own production by 1.5 million barrels a day, or 6 percent. OPEC supplies about a third of the world?s oil.

“I think it makes triggering the OPEC cuts a near certainty,” said George Beranek of The Petroleum Finance Co., a Washington consultancy.

“That’s going to mean, over time, higher crude prices, which will be reflected in higher refined product prices,” he said.

However, energy analysts noted that U.S. inventories of gasoline and other refined products are plentiful. “I really don’t think we have to worry about a return to last spring’s very high gasoline prices,” Beranek said.

In an unusual act of diplomatic brinksmanship, OPEC insisted last month that non-OPEC producers promise to trim their output by a total of 500,000 barrels a day before it would put its own cuts into effect Jan. 1.

Russia had said for weeks it would cut output by just 50,000 barrels a day. By agreeingyesterday to triple the size of that cut, Russian oil companies appeared to acknowledge that OPEC members were probably better equipped than they to weather a collapse in prices caused by a potential glut in crude.

OPEC wants Norway to pare at least 150,000 barrels from its daily production, the OPEC official said. Norway has so far offered broadly to cut output by 100,000-200,000 barrels a day.

Mexico, another leading non-OPEC supplier, has already pledged to pump 100,000 fewer barrels a day, while Oman promises to cut output by 40,000 barrels.

OPEC is hoping for an additional cut of 40,000 barrels from Angola -enough to take the total cut in non-OPEC production to 480,000 barrels a day. The Angolan oil minister said Tuesday that his country would cooperate with OPEC but did not specify the size of any reduction, the OPEC official said.