The Organization of Petroleum Exporting Countries said Thursday it will take a half million barrels a day off the market beginning in February, cementing its apparent intention to do or say what it takes to keep oil prices around $60 a barrel.
The cartel, which pumps a third of the world’s crude-oil, helped stabilize falling oil prices back in October when it announced a cut of 1.2 million barrels a day. But expectations of slower economic growth and a non-OPEC supply surge in 2007 meant the market was still vulnerable to a price collapse.
To prevent that, OPEC sent a clear signal to the market and energy traders reacted, sending oil prices up by more than $1 a barrel.
Wood Mackenzie oil analyst Ann-Louise Hittle described OPEC’s action as “an aggressive approach” intended to put a floor underneath prices.
By delaying the cut until February, however, the cartel left itself a window to change its mind if demand spikes due to a colder-than-expected winter or a stronger economy.
Saudi oil minister Ali Naimi said the price of crude didn’t figure in the decision: “What we’re working towards is to rebalance the market and this decision does this,” he said.
Despite such sentiments — and although the planned cuts were two months away — consumers felt the bite immediately.
Unleaded gasoline futures shot up by almost 5 cents and heating oil futures by more than 4 cents, to settle at $1.665 and $1.7765 a gallon respectively, while benchmark crude rose by $1.14 to settle at $62.51 a barrel on the New York Mercantile Exchange.
OPEC’s decision reflected fears that the level of oil inventories in the U.S. and other large consuming nations remains too high.
Crude oil inventories in the U.S. and other major consuming nations stand at a 12-year high for this time of year, near 340 million barrels. Forecasts for warm December weather also had depressed prices in recent days. And some oil ministers had come to the meeting at the Nigerian capital worried about the shrinking dollar — it has lost 10 percent of its value against the euro this year.
Global oil purchases are made in dollars, so as the currency declines so does the global purchasing power of OPEC members.
While addressing that problem, OPEC President Edmund Daukoru told reporters that the organization was “not rushing into other currencies.”
A volatile market also left OPEC jittery, with prices peaking at $78.40 a barrel in July, then plunging toward $55 last month before rising to present levels in the low $60s — just above the tolerance zone for most member nations.
Plenty of ministers were demanding immediate action. Two months after OPEC agreed to reduce production by about 4 percent, that cutback has still not yet been fully implemented. The IEA — the developed world’s energy watchdog — says OPEC is producing about 780,000 barrels less, or 28.9 million barrels a day in November. Excluding Iraq, which is exempt from quotas, the group produced 27.1 million barrels a day.
“There is still some imbalance,” said Iran’s oil minister, Kazem Vaziri Hamaneh, whose country had held out for a cut effective immediately, along with Venezuela and Algeria.
Ehsan Ul-Haq, chief analyst at Vienna’s PVM Oil Associates, said that by the start of the new year close to 100 million barrels would have been pared from inventories, so Thursday’s action was clearly an effort at controlling prices well into 2007.
“I think OPEC is thinking of second quarter demand” next year, he said, once the traditionally high-use Northern Hemisphere winter has ended. He said he expected world demand then to fall by 2 million barrels a day.
“Over $60, OPEC is nervous about doing anything,” said oil analyst John Hall, suggesting that higher prices could lead OPEC to shelve the February plan.
Ul-Haq also said OPEC “might reconsider their decision, if at the end of December prices have risen.”
“Ultimately ... prices are likely to be influenced more by the weather than by the OPEC decision,” he said.
But some OPEC ministers said the cut would definitely be implemented. Oil taps would be tightened come February “irrespective of the price” of crude oil at the time, said Qatar’s oil minister Abdullah bin Hamad Al Attiyah.
Separately, the meeting also approved Angola as the 12th member of the organization. Daukoru said Angola would join Jan. 1 but would not participate in the envisaged February cuts.