At the same time, the Organization of Petroleum Exporting Countries temporarily raised its official output target to 25.4 million barrels, up 900,000 barrels a day from its existing ceiling. The new quota would take effect June 1, OPEC President Abdullah bin Hamad Al-Attiyah told a news conference.
The delegates announced their decision after emergency talks in Vienna. Crude prices have tumbled in recent weeks, and OPEC feared a further decline if it didn't rein in what it saw as an oversupply just as crude demand reached a seasonal low.
The group based its decision largely on what it said was sluggish global demand exacerbated by the outbreak of severe acute respiratory syndrome, which Al-Attiyah said has dampened demand by 300,000 barrels a day.
OPEC would review its decision when it meets again June 11 in Doha, Qatar.
"We feel we may need another cut in June," Al-Attiyah said.
OPEC also was ready to welcome Iraq back as a participating member, he added.
"I hope Iraq comes back tomorrow," he said, adding later: "We will accommodate Iraq at the right time."
Several OPEC members had boosted their production before the war, hoping to head off a supply shortage. The rapid end of the conflict left them facing what they see as a surplus of 2 million barrels a day.
"It is important to reduce oversupply," Venezuela's Oil Minister Rafael Ramirez told reporters before the hastily arranged talks began. "We have to have more discipline, and it is important to take measures and remove that amount from the market."
If not, OPEC, whose 11 members pump a third of the world's crude output, wouldn't be able to maintain its price target of US$25 a barrel, he said.
OPEC representatives called Thursday's meeting to reassess the group's output levels as oil began flowing again in Iraq for the first time since the war.
Many energy analysts had expected OPEC to agree to curb production. The question was whether OPEC would try do so by lowering its official output target or by taking the much less drastic step of reining in the amount of oil its members were pumping above their respective quotas.
In the end, it took the unusual decision of slashing its actual production — which it calculated as 27.4 million barrels a day, including Iraq — while also raising the nominal ceiling for OPEC's 10 members excluding Iraq. OPEC's current target is 24.5 million barrels a day.
The decision means Saudi Arabia, OPEC's most powerful member, would reduce its production by 1 million barrels a day, Al-Attiyah said.
In the days leading up to hostilities in Iraq, U.S. crude prices peaked at almost $40 a barrel. On Thursday, contracts of U.S. light, sweet crude for June delivery were trading in New York at $26.71 a barrel, up 6 cents from Wednesday's close. In London, June contracts of North Sea Brent crude were trading at $24.42, up 16 cents a barrel.