Watch CBSN Live

OPEC Agrees On Output Cuts

OPEC members agreed Tuesday to cut crude oil production by 2.1 million barrels a day and maintain lower levels of output for a full year starting April 1, oil ministers said.

The group of 11 oil-producing nations approved the cuts in an effort to strengthen prices and end a global oil glut.

"The numbers that you know are the numbers that are agreed," said Venezuelan Oil Minister Ali Rodriguez.

Under the production cuts, Saudi Arabia, OPEC's largest producer, will slash output by 585,000 barrels of crude a day. OPEC's No. 2 producer, Iran, will curtail output by 264,000 barrels a day, while Venezuela will pump 125,000 fewer barrels of oil a day.

Oil prices had already reflected the impact of the expected cuts, and industry analysts say refiners of gasoline have wasted no time passing on the steeper prices to consumers.

"There's no question that gas prices in North America and the rest of the world have risen because of OPEC's decision," said Doug Terreson of Morgan Stanley, speaking from his office in Houston.

The agreement to curtail production was reached two weeks ago. Crude prices responded by jumping almost $3 a barrel, and gasoline prices followed suit.

"After it became evident that OPEC was going to cut production, the price at the pump really began to move quickly," said George Gaspar of Robert W. Baird and Co., a financial services firm based in Milwaukee, Wis.

The average price of all grades of gasoline at U.S. service stations surged nearly 8.5 cents per gallon over the past two weeks, according to the Lundberg Survey, the steepest and fastest increase since Iraq invaded Kuwait in 1990.

Prices shot up more than 9 percent at self-service pumps in the United States, where unleaded regular averaged nearly $1.03 in the latest survey, compared with just over 94 cents two weeks ago, according to the California-based Lundberg.

Analysts say OPEC's plan to curtail production accounted for at least half of the rise in gasoline prices.

Another reason for more expensive gasoline has been the approach of spring, when people usually begin spending more time in their cars.

A decision by OPEC to pump less oil probably will cause gasoline prices to rise by two to three cents a gallon for every additional dollar increase in the price for a barrel of oil, said Fergus McLeod of the securities firm BT Alex. Brown.

By Bruce Stanley

View CBS News In