OPEC cuts oil production
Updated
In an attempt to boost world oil prices, OPEC has approved a record cut in oil production of more 2 point 2 million barrels a day.
At a meeting in Algeria, the Organisation of Petroleum Exporting Countries said the cuts would be effective from January. It would take around 3 per cent of current oil production off the world market, a move that's in response to the global financial crisis .. even though it's so far, failed to spark a rally on world oil markets.
Presenter: Brigid Glanville
Speaker: Stephen Koukoulas, chief strategist with TD securities in London
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BRIGID GLANVILLE: It was less than six months ago that analysts were predicting the price of oil would reach US$200 a barrel. This morning the price dropped below US$40 a barrel - its lowest level in more than four years.
In an attempt to boost prices, OPEC announced it's going to cut 2.2-million barrels a day - the biggest single cut since OPEC began its quota system in 1982.
The president of OPEC is Chakib Khelil.
CHAKIB KHELIL: We hope that the prices, of course, will stabilise at least in the initial phase and evolve in due time towards the target that will be in the interests of producers and consumers which we estimate at between US$70 to US$80 at least.
BRIGID GLANVILLE: Along with expected cuts from non-member countries Russia and Azerbaijan, the OPEC cut will take three per cent of the current production off the world market.
But OPEC's move failed to spark a rally on oil markets with trading depressed by reports of rising crude reserves in the United States. The international energy agency has said it expects global oil demand to fall this year for the first time since 1983 - a worrying sign for oil-producing nations.
Stephen Koukoulas, chief strategist with TD securities in London, says while the cut may hurt the United States and other big oil consumers, they should prepare themselves for more in the future.
STEPHEN KOUKOULAS: Well, our view on the world economy is very gloomy. There is not one part of the major industrialised countries that is growing at all.
I think that we are going to have to see is if prices are to be maintained at even these relatively low levels, around US$40 a barrel, that we're going to have to see production cuts coming through. Even more production cuts than the ones that OPEC are talking about at the moment.
Simply because demand is so weak. The global economy is so weak and in that sort of circumstance, we are not getting the demand even if the producers do cut supply dramatically like we are seeing today.
