The Organisation of Petroleum Exporting Countries (OPEC) has announced a 1.5 million b/d reduction to its oil output targets.
The reduction, effective from 1 November, would put total OPEC production at 27.308 million b/d from the 11 member countries that are bound by quotas.
The organisation cited sliding oil demand resulting from the financial crisis and slowing global economy as the reason behind the cut, asserting that the market has been oversupplied with crude for some time.
The recent plunge in oil price could jeopardise existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage, OPEC notes.
Iraq and outgoing OPEC member Indonesia were not assigned a new production ceiling. The largest cut was assigned to Saudi Arabia, which agreed to reduce output by 466,000 b/d.
The Centre for Global Energy Studies, London, calculates that Saudi Arabia's new quota will be 8.477 million b/d, based on figures released after OPEC's November 2007 meeting. In order to comply with the new quotas, Saudi Arabia will be required to cut its actual production by more than 1 million b/d from an estimated September 2008 level of almost 9.5 million b/d, according to CGES.
'Even though lifting costs are low for the Saudis, they still face cost pressures which they have to respond to,' David Smith, VP Energy, at Celerant Consulting, says. 'Though they have enjoyed high oil prices for some time, the fact that oil prices have fallen by more than 50% in the last four months means they are being squeezed from both sides. Today's announcement comes as no surprise but it remains to be seen whether controlling supply will stop the slide in prices.'
Iran will have to cut its actual output by 300,000 b/d from its September level, Kuwait by 200,000 b/d, and the UAE, Algeria, and Libya each by more than 100,000 b/d. Only Angola and Nigeria were producing less than their new quota levels of output in September, CGES said.