The Organization of Petroleum Exporting Countries has voted to cut 1.5 million barrels a day, for the next six months, from its daily production of crude oil, in an effort to regain control over sagging oil prices.
One OPEC oil minister said "it boils down to supply-side economics." There is too much oil, he said, and not enough demand.
The combination has been forcing oil prices down and the OPEC ministers said they are attempting to place a floor underneath falling prices, in an effort to achieve price stability.
Beginning January 1, OPEC will cut production by six percent and the cuts will last at least six months.
The 11 member Organization of Petroleum Exporting Countries reached its decision after winning a pledge from five non-OPEC nations to cut production by a total of almost one half million barrels a day. Among the non-OPEC countries, Russia, the world's second biggest oil producer, is cutting the most at 150,000 barrels a day.
The head of the OPEC meeting in Cairo, Algerian oil minister Chakib Khelil, said oil producers have seen their profits plummet over the past two decades. "Twenty years ago the share of producers in the price at the pump was 50 percent, which means taxes were 50 percent and the price of oil was 50 percent," he said. "Now that share is 80 percent for taxes, 20 percent for producing countries so the share for producers is going down while shares of revenues in the price at the pump is going up for consuming countries."
Oil prices have gone down 30 percent this year due to several factors: the weakening global economy, the impact of the September 11 attacks in the United States and warmer than normal weather conditions in North America.
According to OPEC ministers, Russia wants to see the price of a barrel of oil at $20-$25, OPEC wants a price of $22-$28 and consuming countries think the price should be around $20 a barrel.
The secretary-general of OPEC, Ali Rodriguez, said he hopes the latest production cuts will lead to prices stabilizing somewhere between $20-$25 per barrel.
The ministers will meet again in March to decide whether further production cuts will be needed.