Oil ministers of the 12 members of the Organisation of Petroleum Exporting Countries agreed yesterday on an expected sharp cut in their supplies.
Opec is to remove a record 2.2million barrels per day (bpd) from oil markets as it aims to boost oil prices in the face of falling demand, which has seen prices tumble by more than $100 a barrel from a peak above $147 in July.
The cut comes on top of reductions of 2million bpd agreed by Opec at its past two meetings and reduces its supply target to 24.845million bpd. The 4.2million total represents almost 5% of world supplies and is based on September’s output levels.
Oil prices did not show Opec’s desired reaction, with London Brent crude down $1.12 at $45.53 a barrel and US crude down $3.54 to settle at $40.06 as dealers fretted that the cut may fail to fully offset slumping world energy demand.
Saudi Arabia, the world’s biggest oil exporter, had reducing supplies by 1.5million bpd even before yesterday’s cut was agreed to help push prices back towards the $75 its ruler, King Abdullah, had identified as “fair”.
Others in the group that pumps more than one-third of the world’s oil said at least 2million barrels more had needed to go from daily output to prevent a massive build in supplies. Opec has encouraged other producers to cut back too.
Russia and Azerbaijan attended the Opec meeting in Algeria as observers and have said they could rein in exports in future.
Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help to pull the world back from the brink of deflation; a growing source of concern.
The AA said this week average petrol prices had fallen to their lowest level for more than 21 months. The price of unleaded petrol fell 5.38p between mid-November and mid-December, to 89.48p a litre. Diesel costs dropped 6.89p, to 101.93p a litre.
Energy Minister Mike O’Brien said a meeting with international energy and oil ministers was planned in London tomorrow.
He added: “The fall in oil prices in recent months has benefited the economy at a difficult time and helped hard-pressed consumers. Volatility in oil and gas prices is undesirable, and both producers and consumers have a role to play working towards a more stable oil market.”