Opec agrees to cut oil output

Opec ministers are under great pressure

The Opec cartel has agreed to reduce the amount of oil it exports into the global marketplace in order to shore up prices.

Opec members

Algeria

Nigeria

Indonesia

Iran

Iraq

Kuwait

Venezuela

Libya

UAE

Qatar

Saudi Arabia

Following a meeting of ministers in Vienna on Thursday, the group decided to cut output by between 1.5 and 1.7 million barrels a day.

"All of them [cartel members] said very strongly they will comply and they will do it," said Qatari oil minister Abdullah al-Attiyah.

It is the first time this year that Opec has decided to change its production quotas.

And the decision is likely to anger consumer nations who fear that higher oil prices will harm the process of economic recovery.

Imminent collapse?

International oil prices soared following the cut.

New York's light sweet crude for delivery in January rose 61 cents a barrel to $28.01 while Brent North Sea crude for January delivery leapt 60 cents to $26.85 a barrel.

Saudi is the architect of this deal and clearly will cut, but will they get the others to comply?

Gary Ross
Pira consultant

Oil prices have been kept high recently by the national strike in Venezuela and the threat of a US-led war against Iraq.

But the cartel is worried that crude oil prices could collapse next year.

Recently, the cartel has been struggling because many members are known to be producing much more than their quotas stipulate, in an attempt to increase their revenue.

The risk in this for Opec - besides damaged credibility - is that so much more oil reaches the market that it pushes down prices sharply, possibly out of the cartel's preferred $22-28 a barrel trading range.

Mixed message

Saudi Arabia urged its fellow members to ensure greater discipline, thus restoring the cartel's credibility.

As well as cutting output, the cartel has also agreed to raise its production quotas by 1.3 million barrels a day.

Analysts said the combination of raising quotas but cutting output risked sending a confusing message to the markets.

And some experts were already sceptical that all countries would stick to their promise.

"Saudi is the architect of this deal and clearly will cut but will they get the others to comply," said Pira consultant Gary Ross.