Opec poised for action

Opec limits the amount of oil drilled by members

The secretary general of Opec, Ali Rodriguez, has confirmed that the oil cartel is preparing itself to cut production for the third time this year.

And Saudi oil Minister Ali Naimi - possibly the most influential member of the cartel - has said that the cartel is now discussing whether to cut its output by 4-6% - that is between one million and 1.5m barrels a day.

Officials from Kuwait, Iran, Qatar and Nigeria have already confirmed their support for cuts of this magnitude.

By cutting production and limiting supply, Opec hopes to prop up the falling price of crude oil in the international markets.

But it will also have a knock-on effect on petrol prices at pumps throughout the world, increasing consumer discontent.

Emergency action

Mr Rodriguez said that the cartel is mulling an emergency meeting in one to two weeks time in order to take action.

And an Algerian press agency has reported that an emergency meeting has been called for 6-7 August in Vienna.

Ali Naimi: drastic action is needed

According to Opec, the action is needed because of the combination of high inventories and the economic downturn - which has weakened demand for oil.

"There are many uncertainties in the market right now, including the present world economic performance," said Mr Rodriguez.

Opec said that the average price of its basket of crude oils fell more than $1 to just over $23 last week, hitting a low of $22.78 on Thursday.

These falls are pushing Opec into taking emergency action.

One official even hinted that a group decision to reduce production could be made over the phone as early as next week.

Price control

Oil prices have already risen substantially on the back of the initial indications that Opec would cut production.

A reduction of 1-1.5m barrels a day would limit the output of the ten countries to between 22.7 and 23.2m barrels a day.

That is the lowest level since the summer of 1999 when prices soared from a low of $10 a barrel at the beginning of the year to $35 in October.

Opec is trying to artificially ensure that the price of its basket of crude oils stays between $22 and $28 barrels a day.