VIENNA, Austria — Defying most expectations, OPEC will cut its oil production target by 3.5 percent beginning in November, the cartel announced today.
The Organization of Petroleum Exporting Countries agreed to reduce its output ceiling by 900,000 barrels a day to 24.5 million barrels. OPEC pumps about a third of the world's crude.
Although the market is currently well supplied, OPEC is taking pre-emptive action now to try to keep prices stable before an expected dip in seasonal demand early next year, the group's spokesman Omar Ibrahim told a news conference.
OPEC predicts that the daily supply of crude will outstrip demand by 2.5 million barrels during the first quarter of 2004.
Iranian Oil Minister Bijan Namdar Zanganeh called the cut a possible "first step" and did not rule out an additional reduction later in the year.
"It is better that we start before we witness a very bad situation in the market," he told reporters before the group's oil ministers met in private to approve the cut.
OPEC had been widely expected to keep its daily production ceiling at 25.4 million barrels. However, a recent slide in prices and OPEC's expectations of a surge in oil inventories among major importing countries have compounded its fears about a further softening of the market.
Iraq's gradual return to the market was also a factor. Zanganeh noted that a cut of 900,000 barrels would return OPEC's output target to what it was before the war in Iraq removed that country temporarily from the market.
Iraq, a founding member of OPEC, participated in its policy discussions for the first time since the ouster of former Iraqi President Saddam Hussein. Iraq's newly installed Oil Minister Ibrahim Bahr al-Uloum took his place between counterparts from Kuwait and Iran at the U-shaped table in the OPEC Secretariat.
Iraq was not seeking a production quota of its own. It now produces about 1.8 million barrels of oil a day — 700,000 barrels less than on the eve of the war in that country. It exports some 900,000 barrels a day, the Iraqi oil minister told a news conference earlier.
"When Iraq returns to normal production, we will discuss with Iraq how to accommodate them. ... Give them time, and then we will discuss this," OPEC president Abdullah bin Hamad al-Attiyah said.
OPEC's policies can have a significant impact on retail prices for heating oil and gasoline, and United Arab Emirates' oil minister Obaid Al-Nasseri sought to play down worries that a production cut ahead of the peak season for heating oil might cause a spike in consumer prices. OPEC could move quickly to add more oil back to the market later if it determines that prices are moving uncomfortably high, he said.
The group said it would meet again Dec. 4 to reassess market conditions.
OPEC wants to keep the price of its benchmark blend of crudes stable within a targeted range of $22-$28 a barrel. The benchmark price stood at $25.14 on Tuesday, the most recent day for which OPEC calculated it.
But crude oil futures soared on reports about OPEC's planned decision. Contracts of U.S. light, sweet crude for November delivery were trading at $28.27 a barrel, up $1.14, on the New York Mercantile Exchange. November contracts of North Sea Brent crude rose $1.23 to $26.75 a barrel on the International Petroleum Exchange in London.
Iraq joined OPEC's formal meeting on policy despite the earlier objections of Venezuela. Venezuela had argued that Iraq should not attend the group's formal meeting because its government has not received U.N. recognition. Iraq's Al-Uloum, backed by OPEC's other members, maintained that his country had a right to participate as a full, voting member.