Live

Watch CBSN Live

OPEC Cuts Crude Flow

OPEC agreed Tuesday to stop overproducing crude at once, and then cut quotas by 1 million barrels effective April 1, ministers said.

The Organization of Petroleum Exporting Countries agreed to the two-stage reduction in output to try to keep oil prices stable when warmer weather erodes demand in major importing countries. OPEC expects the combined cuts to curb its production by about 10 percent, or 2.5 million barrels a day.

The move was somewhat unexpected. A stronger U.S. economy and growth in China are boosting demand and made a production cut unlikely. The delegates were expected to vote to maintain the production ceiling at the meeting in the Algerian capital.

Most of the delegates said Monday upon arriving in Algiers that OPEC members should stop producing above their agreed limits, rather than reduce the quotas themselves.

When OPEC last met in December, several oil ministers predicted that they would make cuts at this meeting to prevent prices from falling as a result of warmer weather and a reduced demand for fuel.

Since then, however, a recovering U.S. economy and vigorous growth in China have boosted demand more than many had anticipated.

Iran's Oil Minister Bijan Namdar Zangeneh argued that OPEC needed to strike a delicate balance in steering a course through the April-June quarter.

"In this situation we should be very careful about the market. We have both high prices and oversupply," Zangeneh said. "It's probably better to wait and postpone any decision until March."

Oil ministers from Libya and Iraq agreed, saying they expected the cartel to defer any decrease in its official output target.

"I don't think there's going to be any change immediately — maybe (at the) next meeting," said Libya's Abdulhafid Mahmoud Zlitni.

OPEC's 11 members pump about a third of the world's oil, with an official production target of 24.5 million barrels a day excluding Iraq, which is exempted from the quota regime while it rebuilds its economy.

But OPEC countries are currently producing about 1.5 million barrels a day more than their output ceiling — a practice ministers say must end.

"A decision will be made to rein in this extra production at least through better discipline," said Algeria's oil minister, Chakib Khelil.

Although most oil ministers suggested they would not cut quotas on Tuesday, OPEC has taken the market by surprise in the past. In September, the organization defied predictions of an unchanged production target by announcing a 900,000 barrel cut in its output ceiling.

The group is still haunted by its 1997 decision to increase production just before an Asian financial crisis that sent oil prices plummeting to $10 a barrel.

OPEC has ruled out increasing production in spite of prices remaining above its target range of $22-28 a barrel for a benchmark blend of crudes.

Kuwait's Oil Minister Ahmad Fahad Al-Ahmad Al-Sabah said OPEC needed first to eliminate overproduction, and then, at its next scheduled meeting on March 31, cut an additional 1 million barrels a day from its official target.

According to the Energy Information Administration, U.S. daily petroleum imports in 2003 averaged 11.2 million barrels a day, with about 5 million barrels a day coming from OPEC countries. The United States consumes about 20 million barrels a day

View CBS News In