With oil prices in free fall, OPEC is cutting production. It is the first time in almost two years that the producers’ cartel has done that. The decision was taken at an emergency meeting in Vienna. It comes in the face of reduced demand as a result of the global economic downturn.
OPEC will reduce the amount it pumps by about 1.5 million barrels a day to 27.3 million. The latest estimate for world demand is 86.5 million barrels per day. Since reaching all-time highs, the price of Brent has fallen 58 percent and US light crude by 57 percent.
OPEC’s President Chakib Khelil blames the financial crisis for the price fluctuation. He told reporters: “There is an oversupply, and the stocks are very high, all of you have numbers for the stocks, for crude, gasoline, for distillates. There are companies that are not able to pay for the oil; so it’s not the effect on the financial markets, it’s the effect of the financial markets on the supply.”
The International Energy Agency, which advises industrialised consumer countries, criticised OPEC’s action saying it would make markets more nervous. Traders said it might not be enough to arrest the price slide and the cartel which produces around 40 percent of the oil used in the world will have cut output further. One Deutsch Bank analyst has predicted the price of a barrel in the US will go down to 50 dollars next year.