Thursday, June 25, 1998 Published at 02:27 GMT 03:27 UK
Business: The Economy
Opec announces output cuts
The price of oil was once $40 a barrel
Ministers from the Organisation of Petroleum Exporting Countries have announced big cuts in output in a bid to revive low oil prices.
The cuts, amounting to 1.35 million barrels per day, will take effect from July 1.
They will more than double the reductions already announced by Opec this year.
But the BBC Economics Correspondent says that, up until now, proposals for further cuts have failed to raise prices because world demand for oil remains low and stocks are high.
After last-minute delays there was uncertainly whether a formal deal could be struck.
Initially, oil ministers meeting in Vienna said an agreement had been reached but the formal meeting was first postponed, and then rescheduled for later as snags occurred.
The group's second-largest producer Iran haggled over the size of its cut and after a couple of hours of discussion, it promised a cut of 305,000 barrels per day, 25,000 less than it had agreed earlier in the day.
The final figure of 1.35 million barrels come on top of cuts of 1.245 million barrels agreed in March.
Saudi Arabia will again make the largest cuts of 725,000 barrels per day, while Venezuela has reportedly agreed a daily cut of 525,000 barrels.
The cuts will mean that Saudi output will be back at around 8 million barrels a day, the same level as before Opec allowed an increase last year.
Dealers were still sceptical as to whether Opec could enforce the output cuts on its members, although some said the cuts could eventually push prices back up to around $17 a barrel.
Need to cut output
The low prices have been causing severe problems for Opec economies, which have based their 1998 budgets on an average price well above current levels, and are now facing a multi-billion-dollar hole in their finances.
Analysts say the March pledge to cut output has not been met and the real cut is estimated to have been 1m barrels at most.
They say real cuts of anything up to 2m barrels will be needed if prices are to return to anywhere near their 1997 levels.
Demand falling in Asia
Analysts believe Opec's problem is of its own making because of its decision to increase output quotas by 10% in November to 27.5m barrels a day and then going on to produce even more than that.
Experts say Opec output was still running at just over 28m barrels a day in May, more than a million barrels a day above the International Energy Agency's (IEA) forecast of average demand for Opec oil this year of 26.9 million barrels.
Forecasts may also be revised down for the rest of the year. The Asia crisis has already led the IEA to revise its Asian demand forecast for this year down by 750,000 barrels since October.
Partly because of this, a new round of pre-Opec meeting pledges by some producers to cut output by a further 740,000 barrels a day from July has made little impression on the market.
The Opec members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Non-Opec members Mexico and Russia have also said they will co-operate with any cuts in output.
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