Iraq has yet to be re-integrated into Opec
Members of the Opec oil cartel, meeting in Vienna, have agreed to cut crude oil supplies by two million barrels a day in an attempt to stop prices falling.
Ministers representing the member states said the move involved reducing extra supplies introduced before the Iraq war, while simultaneously lifting official output quotas.
Under the plan, the cartel's official output ceiling will rise by 900,000 barrels a day (b/d) to 25.4 million b/d while overproduction will be eliminated.
But analysts questioned whether the planned cut in actual output would be sufficient to support prices.
I don't think there was anything they could have done to support this
"This is a highly confusing decision and it sends a very
confusing message to the market," said Raad Alkadiri, analyst at Washington-based PFC Energy.
"It looks like they have
precluded any return of Iraq oil before June, and are
effectively sharing Iraq's market share between them."
Output had averaged 27.4 million b/d in February and March as producers with spare capacity, such as Saudi Arabia, boosted output to ease fears in major consuming countries that war on Iraq would disrupt Middle East oil supplies and lead to sharp price rises.
Those concerns have since subsided and prices have fallen from near $40 a barrel before the war to about $24 a barrel for Brent crude oil - the world benchmark.
Brent dropped 70 cents to $23.57 a barrel after Opec announced its decision.
"I don't think there was anything they could have done to support this
market. Production was just too high," said Tim Evans of IFR Pegasus in New
But overnight in Asia, the mixed signals from Opec meant the price of US crude oil crept up 20 cents to $26.85 a barrel.
Opec policy is to keep oil prices within a $22-28 a barrel trading range, trimming or lifting supplies as necessary to achieve this.
The cartel's fear is that prices will be sent spiralling lower by the combination of its own oversupply, falling demand as the northern hemisphere winter ends, and the expected return to the market of oil from Iraq - an Opec member operating outside the quota system.
Ahead of schedule
Many questions over Iraq's return to the market - and re-integration into Opec's quota system - remain unanswered.
The country was not represented at the Opec meeting and will not resume exports until a new government takes shape and the future of UN sanctions and the oil-for-food programme is resolved.
US military officials said on Wednesday that plans to re-start production in Iraq's southern oilfields were ahead of schedule and 50,000 barrels had been pumped during the day.
Production in the northern fields was expected to be restored to 800,000 b/d in two to six weeks from 21 April, they said.
Before the war, Iraq was pumping about 2.5 million b/d - 1.7 million in the south and 800,000 in the north.
Opec's new quota arrangements are effective on 1 June.
Saudi Oil Minister Ali Naimi said it was "very, very possible" that Opec would decide again to cut production when it meets in Qatar on 11 June.