News & Current Affairs

September 10, 2008

Oil rises on Opec production curb

Oil rises on Opec production curb

Chakib Khelil (10 September 2008)

Mr Khelil said Opec would re-assess the situation at the end of the year

Oil prices have risen to $104 a barrel in Asian trade, reversing earlier losses, after OPEC agreed to return to its late 2007 production levels.

After talks in Vienna, Opec president Chakib Khelil said the measures to curb over-production amounted to a cut of 520,000 barrels a day within 40 days.

The October US light crude future was up about $1 to $104.20 a barrel after earlier tumbling to near $102.

Prices have sunk from a record of more than $147 a barrel seen in July.

On Tuesday Brent crude had dropped beneath $100 a barrel for the first time since April, and crude prices remain close to $100, below which Goldman Sachs said earlier this week could signal a global recession.

The fall from the record prices in July has helped the US dollar, which hit an 13-month high against the euro on Tuesday.

Supply question

The price has since fallen by nearly 30% as a global economic slowdown has reduced demand for oil.

Supply has also been increased in recent months by some Opec members – principally Saudi Arabia.

Meanwhile, Indonesia has suspended its membership of Opec.

Actions [to curb output] will be taken by members as soon as they can
Chakib Khelil, Algerian oil minister

“The conference regretfully accepted the wish of Indonesia to suspend its full membership in the organisation and recorded its hope the country would be in a position to rejoin the organisation in the not too distant future,” Opec said in a statement.

After the late-night talks in Vienna, the group announced it had decided to “strictly” comply to the production ceilings agreed in September last year, which amount to 28.8m barrels a day excluding Indonesia and Iraq.

It linked the falling price of oil to slowing economic growth, a stronger US dollar, easing geo-political tensions and greater supply.

“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” a statement said.

Output curbs

The effect of the measures will be a cut of about 520,000 barrels a day, according to Algerian Oil Minister Chakib Khelil, who chaired the meeting.

“Actions [to curb output] will be taken by members as soon as they can, that means in the next 40 days,” he said.

Opec members will re-assess the situation when the meet again at the end of the year.

The move is a compromise meant to avoid new turmoil in the oil markets, but it also reflects Opec’s attempts to stop the recent falls in global prices.

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