Prices rise as OPEC slashes oil production

Oil prices rose toward US$59 a barrel on Friday after the Organization of Petroleum Exporting Countries (OPEC) agreed to more output curbs than expected and some members said the cartel could even cut production again before the end of the year.

The market briefly surged above US$59, but gains were later checked by nagging concerns that some OPEC members may fail to comply with the curbs.

US crude rose 28 US cents to US$58.78 a barrel by 11:40 GMT, US$1.50 above the 2006 low touched just a week ago.

London Brent crude rose 21 US cents to US$61.08 a barrel.

OPEC decided on Friday to slash its oil production by 1.2 million barrels per day (bpd) from November 1, blaming the move on an over-supplied market.

Ahead of its extraordinary meeting in Doha, OPEC had given the impression that the cut would be only 1 million bpd.

OPEC, whose 11 members together produce more than one-third of world crude output, said it may carry out a further cut at its scheduled meeting in the Nigerian capital Abuja on December 14.

"Maybe in Abuja we have to cut another quantity of oil, maybe up to 500,000" bpd, Venezuelan Energy Minister Rafael Ramirez told reporters on Friday.

Michael Davies, an analyst for the Sucden brokerage firm in London, said the cut "appears to have sent a clear message to the market that OPEC is able to get together and deal with falling prices, restoring much of the organization's credibility.

"With calls for another cut in December to further combat rising stocks, this could be the news the market needed to form a base for the time being. "However, there are many market participants who are also being vocal about whether OPEC will actually deliver."

Prices had fallen to below US$58 in recent days, pressured by strong gains for US energy stockpiles and a drop in global crude demand.

The price falls marked a decline of more than 25 per cent from record highs above US$78 struck in July and August, although prices have tripled since 2002.

OPEC's cut will reduce its actual production to 26.3 million bpd from 27.5 million bpd currently, which is below its official quota of 28 million bpd, in place since July 2005.

"It has been argued than one of the key factors fuelling the rally (in oil prices earlier this year) has been the disappearance of any OPEC spare capacity," analysts at Societe Generale said.

"By cutting actual production by more than 1 million bpd and even more if OPEC has to cut another 1 million bpd in December, its spare capacity would mechanically jump by 2 million bpd; that is roughly a doubling of its current spare capacity. This might be perceived as a bearish factor" for oil prices.

They added: "With more than 4 million bpd spare capacity, even an oil embargo from Iran could be handled by the other members."

Iran, the world's fourth-biggest producer of crude, may face UN sanctions owing to the international crisis surrounding its nuclear programme.

Mohammed Barkindo, OPEC's acting secretary-general, meanwhile told reporters in Doha late on Thursday that the cartel was most concerned about "an increase in stocks and a sharp increase by non-OPEC supplies."

Source: China Daily