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The BBC's Mary Gahan
"The volatility in prices is causing the problems"
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The BBC's Jonathan Charles
"Opec's decision will not help the economy"
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Wednesday, 17 January, 2001, 15:06 GMT
Opec agrees hefty cuts
Opec ministers at a meeting last year
The decision of Opec ministers is unpopular with the West
Opec leaders have agreed to cut oil production by 1.5 million barrels a day, starting on the first of February.

This is equivalent to 5% of Opec's total production. Analysts describe it as a "hefty" cut, and predict that oil prices - and the costs of fuel - are set to rise.

But some member countries such as Iran and Iraq had pushed for sharper cuts in order to boost their cashflow.

Motivated by the fear that oil prices are falling back from recent highs, the cartel has long been expected to reduce oil output, but the extent of the cuts had not yet been finalised.

The reduction in production from the Opec countries is expected to lead to higher fuel prices around the world, and may add to the fears of a world-wide recession.

EU disapproval

The Opec cartel has been repeatedly warned that a decision to cut production is likely to send crude prices soaring and threaten global economic growth.

And a European Commission spokesperson reiterated earlier on Wednesday that it would be disappointed with a 1.5 million barrel cut.

"The Commission considers it premature ... that it would be a very large reduction," said EC energy spokesman Giles Gantelet. "We fear a negative effect especially on the economies of consumer countries in terms of inflation," he added.

And anything larger would have caused alarm.

"Anything above a million and a half would be very aggressive towards the western economies - towards the world's economies," said Peter Gignoux, an oil trader at Salomon Smith Barney

The US, in particular, has been trying to apply pressure to Opec to modify any output cuts.

US Energy Secretary Bill Richardson toured the Middle East ahead of Wednesday's meeting to urge Opec countries not to go ahead with steep cuts in oil production.

But his warnings have gone unheeded

$25 target

Opec is thought to be targeting a stable oil price of $25 a barrel, more than double the single digit oil prices seen during 1998 and 1999.

The determination to cut prices follows a drop of almost $10 in the price of oil from the five- year high of above $35 a barrel achieved last autumn.

Over the summer, Opec increased production to prevent oil prices spiralling higher.

The meeting took just a few hours to conclude after cuts had been informally agreed ahead of the meeting.

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See also:

11 Jan 01 | Business
Oil price 'set to surge'
15 Jan 01 | Business
Oil production cuts loom
07 Jan 01 | Europe
US puts oil case to Opec
05 Jan 01 | Business
Oil output cut 'probable'
31 Dec 00 | Business
Gulf calls for oil output cuts
18 Dec 00 | Review
Oil's extraordinary year
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