The price of oil rose again this morning on the announcement by Opec of a surprise cut in production. This is an attempt to halt the recent correction in the cost of a barrel of crude.
The price of crude oil has fallen by almost 30% over the last two months to just above of the $100 barrier.
Brent Crude, which yesterday slipped as low as $99.34, rebounded to $100.63 a barrel after Opec announced the production cut claiming that the world is now oversupplied with oil.
This unexpected cut in production was announced after Opec members met in Vienna early this morning. The cartel announced that its members would abandon increases in production that were announced during the summer – when the oil price had rocketed to nearly $150 a barrel – and would stick to their previous quota limits.
Assuming that all Opec’s members agree, this would reduce the cartel’s oil output by 520,000 barrels per day, to 28.8m barrels, according to Chakib Khelil, Algerian energy minister and Opec president.
In a statement, Opec said that the oil price has fallen in recent weeks because of falling demand in the developing world, the strengthening US dollar, and an easing in geopolitical tensions following the end of military action in Georgia.
“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” it said.
Even before the Vienna meeting, some Opec members had called for a drop in supply to prevent the cost of oil falling further. There were fears in the cartel that it could be heading for a repeat of the late 1990s, when it boosted production only to see the oil price plunge when global demand dipped.
Most of the 520,000 a day cut will have to come from Saudi Arabia, which announced a production increase in July when political pressure from the West was at its height.