Opec sets record output cut but prices tumble

ORAN (Algeria): Opec oil ministers agreed their deepest production cut ever yesterday, slashing 2.2 million barrels per day from oil markets in a race to balance supply with rapidly crumbling demand for fuel.

The 12 members of the Organisation of the Petroleum Exporting Countries were also aiming to build a floor under prices that have fallen more than US$100 (RM353) from a July peak above US $147 a barrel.

The cut, effective from January 1, comes on top of existing reductions of 2 million bpd agreed by Opec at its last two meetings. It lowers the group's supply target to 24.845 million bpd.

"I hope we surprised you - if not, we have to do something about it," said Opec president Chakib Khelil, host of the conference.

Oil prices dropped US$3 after Opec's announcement of the record supply cut that dealers said would not be enough to counter slumping world energy demand.

Traders also took their direction from rising energy stockpiles in the US, which indicated weakening demand in the world's biggest oil consumer.

US crude oil prices fell US$3.00 to US$40.60 a barrel by 1635 GMT, while London Brent fell 80 cents to US$45.85.

"The world economy is driving the price more than anything Opec can do at this stage," said Gary Ross, CEO of consultancy PIRA Energy. "It will be hard for the cuts to have any traction with regard to price in a deteriorating economic environment."

Opec's president said the group would do its utmost to ensure new restraints were strictly enforced.

"I can tell you it's going to be implemented and it's going to be implemented very well because we do not have a choice," said Khelil, also Algeria's energy minister.

The cut, the third this year, brings a total reduction in Opec supply to 4.2 million bpd, nearly a 5 per cent cut in world oil supplies. Opec is due to meet again on March 15.

Opec has encouraged other producers to cut back too. Just before talks opened, non-members Russia, which attended the session, and Azerbaijan said they were ready to cut their own oil production by about 300,000 barrels a day each.

In Washington, the White House called Opec's decision to cut production "short-sighted" and said the oil cartel has an obligation to keep the market well-supplied.

"It's not clear that Opec's actions will be effective given the shift in global demand and the ability of Opec members to meet the cartel's targets," White House spokesman Tony Fratto said. - Reuters, AFP