OPEC surprises with deeper oil cut

QATAR: OPEC agreed on Friday to curb its output by 1.2 million barrels per day, its first cut for more than two years, to halt a precipitous fall in prices.

The reduction, amounting to 4.3 percent of OPEC's September production, was deeper than anticipated and the biggest since Jan. 2002.

It trims OPEC output to 26.3 million bpd from Nov. 1.

"The credibility of OPEC is at stake," Algerian Energy and Mines Minister Chakib Khelil told Reuters before the meeting that began Thursday and ended in the early hours of Friday.

Some ministers said a further cut of 500,000 bpd could follow when OPEC next meets in Abuja in December, to address high fuel stocks in consumer countries, particularly the United States, and a projected drop in demand for OPEC oil in 2007.

In a statement issued after the meeting, OPEC expressed concern that oil supplies were far outstripping demand.

"The over-supply situation and imbalance in supply/demand fundamentals have destabilized the market," it said.

Khelil said all 10 OPEC members subject to quotas would participate in the cut. Only Iraq, struggling to get its oil industry back on its feet after war and sanctions, was exempt.

"Everybody has a share," Khelil told reporters.

Ministers were aware their failure to speak with one voice in the two weeks leading up to the hastily arranged talks had contributed to oil's slide to $58 a barrel this week, 26 percent off its mid-July peak and near its lowest level this year.

Once in Doha the group that pumps over a third of the world's oil presented a united front.

Saudi Oil Minister Ali Al-Naimi broke his public silence to say the world's leading exporter fully supported the plan to cut supplies and he flagged further cuts may lie ahead.

"This is not the end of the road," he told Reuters.

Gary Ross, CEO at PIRA Energy consultancy, said it was clear OPEC meant business.

"OPEC sees itself being challenged by financial speculators and will respond aggressively to make clear to the market its price objectives and willingness to cut volumes to achieve these objectives," Ross said.

Doha, Friday, Reuters