OPEC Will Make Record Output Cut to Revive Oil Prices

OPEC, supplier of more than 40 percent of the world’s oil, will reduce production by a record 2 million barrels a day to shore up prices as a global recession cuts demand, Saudi Arabia’s oil minister said. The Organization of Petroleum Exporting Countries is set to slash production quotas from 27.3 million barrels a day starting on Jan. 1, Ali al-Naimi, who sets policy in the world’s largest oil exporter, said before today’s meeting in Oran, Algeria. A formal announcement is expected once the meeting is over. quick divorce Oil’s $100-a-barrel collapse from July’s record prices has curbed revenue for producers, threatening government budget shortfalls. Saudi Arabia’s King Abdullah said last month that his country needs crude at $75 to spur development. Russia, the largest non-OPEC producer, may join the group in cutting output as global oil demand falls for the first time since 1983.

“Now, the question mark is non-OPEC cooperation,” said Mike Wittner, head of oil market research at Societe Generale in London. “More importantly, will the market believe that Russia or other non-OPEC” producers will agree to further reductions on top of declines that are going to happen anyway.

Russia may announce a 400,000-barrel-a-day cut in output to support the group’s action, Kuwaiti Oil Minster Mohammed al-Olaim said yesterday. Azerbaijan’s oil minister said today his country may lower production as much as 300,000 barrels a day.

Al-Naimi said the group’s rate of compliance with a previous output cut was 85 percent. Asked if the latest reduction would start from Jan. 1, the minister replied: “Yes.”

Manifa Start

Saudi Arabia’s Manifa oil field will start in 2011 only if consumers require the extra crude, al-Naimi said later in an interview. “When we need it, it will be there,” he said, adding that the start of the field depends on the “market situation.”

Crude oil for January delivery climbed as much as $1.90 to $45.50 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $45.46 as of 9:37 a.m. London time.

The price slump since July spurred OPEC to reduce output for the first time in two years when it met in October. The group deferred a decision on further cuts at its Nov. 29 consultative meeting in Cairo.

Today’s decision will exceed the 1.9 million-barrel cut agreed on in March 2000. That was a bigger reduction in percentage terms than today’s likely 7.3 percent cut because Iranian production was excluded from the quota at that time.

The meeting started today with an opening session at 9:30 a.m. local time in the Sheraton Hotel in Oran, followed by a closed-door session at 11 a.m., a lunch with Algerian President Abdelaziz Bouteflika at 1 p.m., and a further closed-door session later in the afternoon. A press conference is tentatively scheduled for 4 p.m.