Oil prices soar on output hopes

Oil prices slumped after 11 September

Oil prices gained more than $1.50 before slipping back to close about $1 up on the day as hopes mounted of a cut in crude oil output before the end of the year.

Crude oil prices, London:

Wednesday close:
$19.34

Thursday high:
$20.88

Thursday close:
$20.40

Prices for February delivery of Brent North Sea crude oil.

The $20.40 dollars per barrel closing price was close to the lower end of the price range targeted by the oil cartel Opec.

A meeting of Opec leaders is expected to bring the week to an end with a decision to cut output sharply in a fresh attempt to prop up the sagging price of oil.

The cartel is "100% certain" to agree to cut 1.5 million barrels a day on Friday, according to Saudi Arabian oil minister Ali al-Naimi.

Output from Opec members

Saudi Arabia: 7.92m

Iran: 3.73m

Venezuela: 2.83m

Iraq: 2.77m

UAE: 2.14m

Nigeria: 2.07m

Kuwait: 2.02m

Libya: 1.39m

Indonesia: 1.22m

Figures: barrels per day

The cut was initially announced in November, but was conditional on co-operation from non-Opec countries including Russia, Mexico and Norway.

It has taken this long to get them on board with guarantees that their producers would not take up the slack.

Crude oil prices hit a 29-month low in November, and the cartel has put considerable pressure on non-member countries to co-operate in combating the price fall.

The non-Opec producers have now pledged cuts totalling about 462,500 barrels a day - close to the 500,000 barrels Opec members had demanded before cutting their own output.

Russia and Norway have pledged to cut output by 150,000 barrels a day apiece, with Mexico promising 100,00 barrels, Oman 40,000 and Angola 22,500.

Limited outcome

But the effect of the cut might still be limited.

Non-Opec oil output

US: 7.7m

Russia: 6.5m

Mexico: 3.5m

Norway: 3.4m

Figures: barrels per day

Russia, one of the biggest non-Opec producers, may have made a promise, but its powerful and oligarchic oil companies may well ignore government strictures.

Not to mention the tendency by Opec members themselves to forget their promises and overproduce - by up to 500,000 barrels a day, according to some figures.

And warm weather in the world's number one oil consumer, the US, and the weak economy may impose their own rules on the market.

Fighting the tide

Opec has spent much of the past few months since 11 September struggling against a plunging price for crude oil.

Sagging demand amid a global slowdown has seen the price fall more than a third, from $30 seen in August to a steady sub-$20 level since.

The 11-member cartel is aiming for a price between $22 and $28 a barrel.

Prices for options on future oil deliveries have reflected the likelihood of fresh production cuts, surging above $21 a barrel on 26 December.

The cartel, which produces about 40% of the world's oil, has cut production by 3.5 million barrels a day so far this year.