Published December 18, 2008

Opec hits market with biggest single cut

Russia and other non-cartel members also weigh in

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(ORAN, Algeria) Opec will cut another 2.2 million barrels a day from its output - the largest ever at one time - to stem crude prices that have plummeted over 70 per cent from summer highs of nearly US$150.

Done deal: Russia's cuts have already been enacted, says Mr Sechin, seen here at the Opec meeting

This means that Opec is taking 4.2 million barrels a day off the market compared to September levels. The 4.2 million figure includes more than 500,000 barrels of over-production that Opec said in September it would eliminate and a formal cut of 1.5 million barrels a day that it agreed on last month.

Members of the 13-nation organisation were officially producing a daily 29.045 million barrels in September.

The decision to pare two million barrels from output all at once would be a first for the organisation. An Opec reduction of that size four years ago was enacted in stages.

Opec, which produces more than 40 per cent of the world's oil, will next meet in March. Chakib Khelil, the group's president, said after the meeting in Oran, Algeria, yesterday that Opec has no official oil price target.

Despite the announcement of the production cut, US light crude for January delivery, due to expire on Friday, was down 52 US cents at US$43.08 a barrel at 1606 GMT after having fallen to a low of US$42.56 in the previous session, just off a four-year trough of US$40.50 a barrel hit on Dec 5.

The February US crude contract was up 24 US cents at US$46.94.

London Brent crude for February delivery was up 69 US cents at US$47.34.

Oil's US$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 US$75 to spur investment.

Russia cut oil exports by 350,000 barrels a day last month and may reduce supply a further 320,000 barrels a day next year, in collaboration with Opec, if prices remain weak, Russian Deputy Prime Minister Igor Sechin told Opec ministers during the opening speeches at yesterday's meeting in Oran.

Other non-Opec producers, including Kazakhstan, may trim production as well, Mr Sechin said. Azerbaijan may lower production by as much as 300,000 barrels a day, Azeri Energy Minister Natig Aliyev said in Oran.

Still, their commitments appeared to be at least partially symbolic. The Russians indicated that their reductions were already implemented in November, while Azerbaijan's output had already been reduced by about a third due to production problems earlier this year.

Mr Sechin, in comments to AP, said: 'Russian oil companies have already made a decision to cut deliveries to the market . . . approximately equivalent to 350,000 barrels per day.'

In later comments, he specified that his country's cuts had already been enacted ahead of the Opec meeting, and 'if the current situation stays as it is, the actions of our companies will be continued'.

The fact that Russia was announcing reductions already enacted reduced the significance of its move. Mr Aliyev said that his country 'will support the Opec cuts', slashing up to 300,000 barrels a day from Azerbaijan's output. -- AP, Reuters, Bloomberg