OPEC's plan to cut supply has disappointed the United States despite the high stocks cushion.
Reuters - Oct. 8, 2006
Pump Jacks at twilight - OPEC plans to reduce output to increase price.
ALGIERS, Algeria - OPEC is expected to make formal Monday a deal to remove 1 million barrels a day of crude from oversupplied markets, an OPEC source said, as ministers lined up to support the cut.
Iran, OPEC's second biggest producer, and Algeria on Sunday publicly backed the reduction, OPEC's first since April 2004. The plan was made public on Thursday by a senior OPEC delegate.
"I think there is more or less consensus for 1 million bpd," OPEC President Edmund Daukoru told Reuters by telephone Sunday. "The reference point is the (official) 28 million bpd ceiling."
An OPEC source said Daukoru had written to oil ministers in the last two days seeking their backing for the supply curbs.
"It is expected that there will be a decision on Monday to cut one million barrels per day from the official ceiling after consultations between the ministers," the source told Reuters.
Algerian Energy and Mines Minister Chakib Khelil also said the Organization of the Petroleum Exporting Countries had reached a consensus to lower output. This would have a positive impact on the market, he added.
Oil fell below $60 a barrel Friday as investors doubted OPEC's resolve to cut, given the absence of an official statement. U.S. crude settled at $59.76, off nearly $20 from a mid-July peak of $78.40.
The OPEC president, along with OPEC's second biggest producer Iran, says the 11-member group would make the cuts from an official 28 million bpd ceiling - a move that could lead to tricky negotiations over a realignment of OPEC quotas.
OPEC is due for a scheduled meeting Dec. 14 in Nigeria, but some members want to hold an emergency session before the end of this month.
"What is important is that the market finds the OPEC position credible. That is why it is necessary to have a meeting to make a decision on the cut and to act on it," said Algeria's Khelil.
He said OPEC members were still discussing the possibility of a gathering on Oct. 18-19, an idea he said was supported by Algeria, Saudi Arabia, Libya and Venezuela.
Daukoru said OPEC countries could implement cuts next time they set their monthly sales volumes to their customers.
Nigeria and Venezuela both announced unilateral reductions just over a week ago.
"I am not in favor (of an emergency meeting) but I need to consult my colleagues,"
A senior OPEC delegate said Thursday that leading oil exporter Saudi Arabia would shoulder the biggest part of the burden as OPEC moves to address a 23 percent drop in prices since July 14 and brimming fuel stocks around the world.
The delegate said nine states would take part in the curbs and cut their "fair share" from overall output. OPEC pumped 29.47 million bpd in September, according to a Reuters survey.
Khelil said Algeria would reduce production, but did not say by how much. Iran said it would support an OPEC cut but that the group was still discussing the size of any reduction.
"The cut will be from the current production ceiling of 28 million barrels per day because otherwise it will have no impact on the market," the official IRNA news agency quoted Iranian Oil Minister Kazem Vaziri-Hamaneh as saying.
The United Arab Emirates - OPEC's third largest producer - and Qatar have yet to make a public comment. Iraq is not bound by OPEC quotas and Indonesia is a net importer.
OPEC last changed its ceiling in July 2005 with a 500,000 bpd increase in response to rising demand from China and the United States and a seemingly relentless rise in oil prices.
OPEC's plan to cut supply has disappointed the United States despite the high stocks cushion. White House economic adviser Al Hubbard said President Bush was not happy with oil prices near $59 a barrel.
Among major oil companies, shares of Exxon Mobil and ConocoPhillips finished higher Friday, while Chevron declined.