Oil output cut 'imminent'

Opec's hands are tied by the political situation

The Opec oil cartel could slash the production of crude oil in a matter of days.

Opec's secretary general Ali Rodriguez told the Bloomberg news agency that a cut of up to one million barrels a day - or 4.3% of the cartel's production - was under consideration.

Main Opec producers, '000 bpd, August

Saudi Arabia: 7,919

Iran: 3,733

Venezuela: 2,827

Iraq: 2,773

UAE: 2,140

Nigeria: 2,066

Kuwait: 2,024

Libya: 1,386

Indonesia: 1,215

Source: Opec

A cut in production would combat a slump in oil prices, which have sunk to a two-year low, hovering just above $20 a barrel - well below the $22 to $28 target range.

But such a decision could also heighten political tension at a very sensitive time.

Opec's stated aim is to balance the supply and demand of the world's crude oil market, and adjust production accordingly in order to ensure that prices remain strong.

But analysts say that political and military events are now dominating the cartel's decision, rather than market dynamics.

Disunity?

Oil ministers from the 12 member countries were in video-conference contact on Wednesday morning to discuss the possibility of cuts.

Producers have known worse times than this

"We have to analyse very carefully before making any kind of decision. I am receiving the opinions of the different member states and then there will be a decision," said Mr Rodriguez.

Mr Rodriguez indicated there would be some kind of decision by next week.

And he denied there was disunity within the cartel, despite the evident disagreements between countries such as Iraq, Iran and Saudi Arabia following the US military action against Afghanistan.

Emergency meeting

Opec pumps around two fifths of the world's crude oil.

It has already cut oil production three times this year.

The cartel opted to leave its quota unchanged - at 23.2 million barrels per day - at its 27 September meeting.

And the member states promised to keep oil prices stable in the immediate aftermath of the 11 September terrorist attacks.

The cartel was not due to review quotas again until mid-November.

But an emergency decision is now on the cards.

Rollercoaster prices

The composite "basket price" of Opec crude oil fell to $19.61 a barrel on Tuesday - below the key $22 threshold for a 12th successive day.

A fall below this level for 25 consecutive days would normally trigger a reduction in output.

Opec's basket price has lost almost $5 a barrel since August.

Although oil prices rose sharply immediately after the terrorist attacks, they quickly dropped back again when it looked unlikely that oil fields would be affected.

Analysts then said that the cartel's hands were tied by the political situation and suggested that it would not cut prices despite the slump in prices.

Shares in oil companies such as Shell and BP rose almost 3% on Wednesday on the expectations of production cuts.