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Last Updated: Friday, 10 December, 2004, 12:53 GMT
Opec agrees to cut oil production
An oil refinery
Refineries are working overtime
Oil cartel Opec has agreed to cut back on the rampant quota-busting which its members blame for the recent retreat in oil prices.

The group's 11 states are estimated to pump as much as 1.7 million barrels a day more than their 27 million quota.

The cost of a barrel of oil in New York has fallen 21% to $43.10 since its all-time high in October of more than $55.

Opec ministers said they would meet again on 30 January to discuss a possible quota cut if prices stay high.

Production is currently at a 25-year peak, driven by soaring demand from the US and China and supply disruptions.


The main over-producer is Saudi Arabia, which has been pumping about 9.5 million barrels a day since August - almost 900,000 more than its quota allows.

The oil on which the Opec basket price is based comprises:
Saharan Blend, Algeria
Minas, Indonesia
Bonny Light, Nigeria
Arab Light, Saudi Arabia
Dubai, UAE
Tia Juana, Venezuela
Isthmus, Mexico (non-Opec)
Opec ministers said Friday's agreement would reduce over-production by about a million barrels.

The cut is scheduled to start in mid-January.

"Everyone has committed for next month," said Kuwaiti oil minister Sheik Ahmad Fahad Al-Ahmad Al-Sabah.

Many Opec members - particularly those in the Middle East - are relying on higher oil prices to support the public purse, burdened by growing populations and high unemployment.

Also on Friday, the Paris-based International Energy Agency research group said it saw demand growth slowing slightly in 2005.

But it reiterated that the other main drivers for high prices - namely capacity constraints and geopolitical threats - "will not disappear overnight".

Kuwaiti oil minister Sheikh Ahmad Fahad al-Ahmad al-Sabah
Kuwait has spoken out against quota-busting

"Producer concern over a precipitous fall in prices is somewhat overstated," it said in its monthly oil market overview.

In the basket

At least for now, a cut in the quota itself seems off the agenda until an extra meeting tentatively scheduled for February.

But the second quarter of next year could well see the quota trimmed, ministers said.

Also pencilled in for discussion early next year is Opec's price band of between $22 and $28 a barrel for the group's reference or "basket" price.

The basket price has been above the band for more than a year, and several countries - notably Iran - are pushing for a new floor of $32.

On Thursday, the basket price was $34.29, up 1% on the previous day.

Why Opec wants to cut production

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