Largest cut in OPEC’s history
The Organization of the Petroleum Exporting Countries (OPEC) has drastically cut the daily production of oil by 2.2 million barrels per day (bpd). In a decision reached in Oran, Algeria, energy ministers from all 12 OPEC members agreed to make the largest cut in OPEC’s history.
Oil prices have fallen from a high of $140 in July to just around $40; a decrease of $100. OPEC has cut 4.2 million bpd since September, when the price of oil decreased suddenly over fears of a global recession and lower usage of oil.
With this new decrease, production by OPEC members will be 24.845 million bpd. Saudi Arabia is taking the majority of the cut by decreasing their production by 1.2 bpd.
In the statement released by the organization, they wrote “…that crude volumes entering the market remain well in excess of actual demand: this is clearly demonstrated by the fact that crude stocks in OECD countries are well above their five-year average and are expected to continue to rise. Moreover, the impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices…”
OPEC faces a tough task in trying to level the price of oil to a reasonable amount. Most experts and oil officials believe that $75 is the ‘fair price’ for a barrel of oil. Chakib Khelil, the OPEC president, said during the meeting that “OPEC has a long-established record in meeting the challenges it faces, however tough they may be. The challenge facing the oil market today is clearly a formidable one.”
Russia, which is not a member of OPEC, also agreed that a cut was needed and would cut its production by 600,000 barrels. OPEC will also urge other non-OPEC members who are oil exports, to cut their production. Mexico and Norway are two of the largest oil producers that not members of OPEC. Russia’s action is not official and Russia has had a history of failing their pledge to cut their output.
The Organization of the Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
The organization has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. Indonesia’s membership from OPEC was voluntarily suspended recently as it became a net importer of oil.