Oil production cut to push up prices

Oil producers today responded to the falling oil price by slashing production.

A meeting of the Organisation Of Petroleum Exporting Countries (OPEC) saw a deal – including non-member Russia – to cut production by 2.2 million barrels a day.

Since the summer oil prices have fallen from a peak just shy of $150 a barrel to the current price of $44.60 for Brent crude.

Speaking before the meeting in Oran in Algeria, Saudi Arabian oil minister Ali al-Nuaimi said: "There is a consensus on a cut of two million barrels a day."

Russia and Azerbaijan are expected to cut production by 600,000 barrels a day.

Following a recent 2 million barrels a day cut, total production will be down by 4.2 million barrels per day from September levels.

Turning the tap on oil production is seen as necessary to push up the prices for the Opec nations, as recession and recent high prices have hit consumption.

"We think it will achieve purposes of meeting equilibrium between supply and demand," said Chakib Khelil, Algeria minister of energy and president of the OPEC meeting.

He suggested total production will be dropped by 14 per cent – based on Algeria's own reduction in production.

"We will wait for countries to contribute to stabilize the market.

"I think what is important, each country has a reduction to implement. You will have to wait until January to see if countries implement the cut.

"We have no other choice. If not, the situation will get worse, and will get worse for non-Opec countries."

The OPEC monthly market report out today stated: "The downward movement for the OPEC Basket continued for the fifth consecutive month, dominated by the bleak economy.

"Reports that some nations had moved into recession and the plunge in equity markets to a five-year low triggered fears of further oil demand destruction.

"In 2009, the demand for OPEC crude is expected to average 30.2 million barrels a day, a drop of 1.4 million barrels a day from the current year."