Lagos — Citing the current global financial crisis, which has slowed demand for oil, the Organisation of Petroleum Exporting Countries (OPEC), yesterday at its 150th Extraordinary Meeting in Vienna, Austria agreed to cut its current production of 28.808 million barrels a day by 1.5 million barrels per day, with effect from November 1, 2008.
But the announcement did not stop the price of crude oil from plunging, as it fell to $63.04pb yesterday
In a communiqué issued at the end of the meeting, OPEC explained that it resolved to decrease output to stem plunging prices of crude, which may put many existing oil projects at jeopardy and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.
The group said the decision was binding on the 11 member countries that have strongly emphasised their firm commitment to ensuring that the volumes they supply to the market were reduced by the individually agreed amounts.
A breakdown shows that affected members will have their production reduced as follows: Algeria, 71,000, Angola 99,000, Ecuador 27,000, Iran 199,000, Kuwait 132,000, Libya 89,000, Nigeria 113,000, Qatar 43,000, Saudi Arabia 466,000, United Arab Emirate 134,000 and Venezuela 129,000, totalling 1,500,000.
The statement reads: "The conference observed that the financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular.
"This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time, an observation which the organisation has been making since earlier this year.
"Moreover, forecasts indicate that the fall in demand will deepen, despite the approach of winter in the Northern Hemisphere. Similarly worryingly, the conference noted that oil prices have witnessed a dramatic collapse - unprecedented in speed and magnitude - these falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.
"Accordingly, the conference has decided to decrease the current OPEC-11 production ceiling of 28.808 million barrels a day by 1.5 mb/d, effective 1 November 2008."
While expressing its commitment to providing adequate supplies of petroleum to consuming nations and maintaining crude oil prices at fair and equitable levels for the benefit of the world economy and the wellbeing of the market, the organisation pointed out that it "cannot be expected to bear alone the burden of restoring equilibrium"
It called on non-OPEC producers/exporters to "contribute to efforts to restore prices to reasonable levels and eliminate harmful and unnecessary fluctuations."
It however said the decision would be reviewed at its Extraordinary Meeting scheduled to be convened in Oran, Algeria on December 17.
Defending the decision to cut prices, Nigeria's Energy Minister, Odein Ajumogobia told a news agency that OPEC decided to slash production in order to restore the supply/demand balance in the market, "and cannot affect the impact of other non-fundamental factors on the price."
Meanwhile, world oil prices continued to fall yesterday notwithstanding the output cuts by OPEC as US sweet light crude shed $4.80 to sell at $63.04 while London Brent dropped $4.42 at $61.50.
The price of crude oil has tumbled 54 per cent from its peak of $147.27 reached on July 11.
Oil has plunged as the credit crisis hits economic growth and oil demand in the United States, the world's biggest energy consumer, and other industrial countries.
However, most analysts as well as the International Energy Agency, which advises industrialised consumer countries, are of the view that the production cuts will not rescue the oil price.
"It's not a helpful decision because markets are quite nervous," the IEA said