Caracas , October 20, 2006 (Venezuelanalysis.com)— The Organization of Petroleum Exporting Countries (OPEC) decided today to slash its oil output by 1.2 million barrels per day (bpd). Cuts to Venezuelan production will equal 138,000 bpd of that total, and are the third largest of the OPEC countries, behind Iran and Saudi Arabia. The reductions will go in to effect on November 1st.
“The mechanism of the reduction was just and fair and strengthens the price of the barrel, in line with our efforts to ensure the maximum appraisal of the resource, which is a principle supported consistently by Venezuela,” said Venezuela’s Minister of Energy and Petroleum and PDVSA President, Rafael Ramirez, from Doha, the capital of Qatar, where the decision was made during this week’s Consultative Meeting of the OPEC Conference.
Today’s decision comes just three weeks after Venezuela voluntarily reduced production by 50,000 bpd in response to falling oil prices. Last Wednesday, in advance of the OPEC conference, Venezuela had announced a further cut of 50,000 bpd. According to the PDVSA website, both of these previous cuts will be included in the 138,000 bpd.
With oil prices having fallen by 25% from their highs in August many analysts had anticipated an OPEC decision to reduce overall production, however according to reports from earlier this week, the 1.2 million bpd OPEC cutback is even larger than expected.
During this week’s meeting in Doha, OPEC also evaluated the possibility of further production cuts before the end of the year.
“We evaluated the possibility that at the next OPEC meeting on December 14 in Abuja, Nigeria, we could produce an additional reduction in order to take the prices to a level that allows a fair price for the producing countries,” said Ramirez to Venezuela’s state channel, VTV.
"Maybe in Abuja we have to cut another quantity of oil, maybe up to 500,000," said Ramirez, according to AFP.
Although it is too early to analyze the effect of the reduction announcements on the global market, world oil prices appeared to hold relatively steady today, at just over $58 per barrel.
While the decision to reduce production was welcomed by some, especially among the OPEC countries, according to Reuters, the International Energy Agency (IEA) declared that “this is probably the worst moment to implement a reduction.”
“We are entering the heating season. There is still a great risk in the supply chart,” said IEA Executive Director. Claude Mandil. Mandil also believes that the price of $60 a barrel is still elevated, considering that a year ago, $60 per barrel was considered high.
However, according to the Venezuelan daily El Universal, Bill O’Grady of AG Edwards, doesn’t believe that all of the countries will actually implement the cuts.
“Investors still doubt that all of the countries are going to put the decision in to practice,” said Mandil.
OPEC production accounts for more than one-third of world crude output, and according to AFP, this week’s cuts will reduce its actual production to 26.3 million bpd from its current output of 27.5 million bpd.
According to the Venezuelan state-oil company, PDVSA, Venezuela was producing at its quota of 3.22 million bpd until it’s first voluntary cuts on October 1st. Nevertheless, some oil analysts disagree and estimate Venezuelan production to actually be below 3 million bpd, which has left some to critique that Venezuela’s reduction of 138,000 bpd will be in “ghost” production alone.