Opec cuts exports to boost prices

News of the cuts is pushing prices higher

The oil producers' cartel, Opec, has agreed to cut its oil exports in a bid to shore up crude oil prices.

Non Opec countries to cut production

Mexico

Russia

Norway

Angola

Oman

The cartel's 10 member countries will cut production by 1.5 million barrels a day for six months from 1 January, Saudi Arabian Oil Minister Ali al-Nuaimi said at a meeting in Cairo.

The move follows agreement by five oil producing nations outside the cartel to reduce their own output to support the effort to raise oil prices.

The alliance with non-Opec countries is unprecedented and restores credibility to Opec's ability to influence markets.

Heading higher

Oil prices in London moved higher after the news on Friday morning, with the benchmark Brent crude oil futures for February rising 43 cents to $20.77 per barrel.

But doubts over how soon and how fully the cuts can be implemented caused prices to fall back by the close of business.

Prices had already risen by $1 on Thursday, breaking back through the $20 a barrel mark.

Ali al-Nuaimi: Russia will stand by its promises

If price rises in crude oil are sustained, they are likely to feed through - in a limited way - to pump prices paid by motorists in the spring.

Ray Holloway from the Petrol Retailers' Association said petrol prices in the UK could rise by 2p or 3p a litre in the short-term.

That would reverse the recent slump in petrol prices from about 77p a litre at the beginning of the year to about 69p now.

The oil price has remained weak for most of 2001, undermined by the global economic slowdown and a slump in the aviation industry, both of which have reduced demand.

Prices hit a high of almost $30 a barrel immediately after the terrorist attacks, but had slumped to $17.7 a barrel by mid November.

Opec admitted that it was powerless to prop prices alone, and demanded the help of non-member countries - Russia, Mexico and Norway in particular.

Relying on Russia

There has been much speculation whether Russia will stick to its promised cuts.

Oil Prices, 2001

High - $29.91

Low - $17.7

Average - $25

A failure by the Kremlin to honour its pledge would undermine the willingness of Opec states to implement their own reductions, leaving oil prices to slide again.

Opec secretary general Ali Rodriguez, Venezuela's oil minister , said the cartel would hold a meeting with Russian Prime Minister Mihkail Kasyanov in January.

Saudi Arabia's Ali al-Nuaimi expressed confidence that Russia would meet its commitments, and that oil prices would recover in the second half of 2002.

Even sharper cuts

Ahead of the meeting, there was some pressure for even sharper cuts.

Iran's oil minister, Bijan Namdar Zangeneh - who has the reputation of being the price hawk of the cartel - said that his country still supported a cut of 1.8 million to 2.0 million barrels per day for both member and non-member countries.

But Mr Zangeneh signalled on Friday that he would agree to cuts of 1.5 million barrels per day.

Export cuts by non member countries will total 462,500 barrels a day, slightly short of the 500,000 barrels per day demanded by Opec.

Including the latest cuts, Opec has now reduced its exports by a fifth - 5 million barrels a day - in just one year.