The Organization of Petroleum Exporting Countries agreed at a meeting in Cairo, Friday to cut production by about four percent. The cut is aimed at halting the recent slide in prices.
The decision by 11 OPEC members would cut production by about one million barrels per day. Currently, OPEC is producing about 28 million barrels of oil per day, accounting for more than one-third of global production. Oil prices surged 31 percent this year, but in the past few weeks have come down 20 percent from their record high of $55 per barrel. Following news of the OPEC decision, prices on the spot market rose 50 cents per barrel to $43.
At their Cairo meeting, OPEC ministers emphasized that the production cut should have a minimal impact on the market. Venezuelan Oil Minister Rafael Ramirez says individual production quotas will be reviewed next month.
"Today, we are just cutting in the overproduction. In January, we are going to see the ceiling of the OPEC production," he says.
The sharp rise in prices this year has brought windfall profits for oil producing nations. Despite that, several OPEC members have been exceeding their production quotas, something the cartel would like to stop.
Abdullah bin Hamad Al Attiya, the oil minister of Qatar said "We are very concerned about the overproduction of quota. This cut is not from the ceiling. It is cut from the overproduction. So, this is a different problem."
OPEC made no decision on raising its target range of oil prices, currently at the unrealistic level of $22 to $28 a barrel.
The OPEC officials voiced concern about the loss of purchasing power resulting from the dollar's steady decline against major currencies. Oil prices are denominated in U.S. dollars.
Prices have fallen from their record highs because of signs that the approaching North American winter may be less severe than first anticipated, possibly moderating the demand for heating oil. In addition, diminished U.S. oil inventories have been rising. Analysts say the sharp increase in oil prices this year is the result of a rebounding world economy, and, in particular, a rise in demand by China, the world's fastest growing major economy.