OPEC plans to drastically slash oil output, hoping to undo the damage it did to oil prices by an ill-judged decision to start pumping more crude last winter.
World oil supplies are so glutted that OPEC acknowledged its plan to withdraw 1.355 million barrels a day from the market - reducing daily output to 26.5 million barrels - is unlikely to have an immediate impact.OPEC was right on that point. Brent crude oil to be delivered in August fell 15 cents to $13.46 per barrel by late Thursday morning on London's International Petroleum Exchange.
Traders were skeptical about whether OPEC will deliver its latest promises, and it likely will be about six weeks before they get initial indications about whether all the promised production cuts are real.
Nigerian oil minister Dan Etete suggested at a meeting of OPEC ministers in Vienna that it might take until October or November for prices to improve by around $3 per barrel.
But experts say that if OPEC sticks to its promises - and this is far from certain given the group's previous lack of willpower - then prices could move sharply higher by early next year, shifting the fortunes of global economies.
The OPEC president, United Arab Emirates oil minister Obaid bin Saif al-Nasseri, said the new cuts will "banish the volatility so plaguing the market."
That would be a welcome relief to oil producers who recently saw prices plunge to levels unseen since the industry's disaster year of 1986. OPEC's average price was less than $11 per barrel last week, barely half the group's official target of $21, though it since has shown modest recovery.
If OPEC's plans succeed, then consumers, including gas-guzzling Americans, and oil-dependent economies like Japan and Germany, would stop getting a huge break on their fuel bills.
Leo Drollas, chief economist at the London-based Center for Global Energy Studies, said OPEC's promised production cuts are severe enough to make supplies extremely tight in the longer term.
OPEC said its new production figures will stay in effect for a year, starting July 1.
"The duration, that's the key," Drollas said. "That's the sting in the tail. This, on paper, looks hideous for next year. You're talking $25 oil."
OPEC was forced into action after its disastrous decision in November to raise stated output by 10 percent. The extra oil started flooding the market just as the southeast Asian economic crisis began cutting into demand for crude oil, the world's most vital commodity.