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NEW YORK -- Oil prices on the New York Mercantile Exchange rose nearly $1, to more than $62 per barrel, in response to the Organization of Oil Producing Countries (OPEC) decision to cut oil output by 2 percent, beginning in February, Reuters reported. The January contract for U.S. light crude rose 96 cents to $62.33 a barrel.
"We are committed to supplying the market, but we want to establish a balance between supply and demand," OPEC president Edmund Daukoru said. Analysts believe that the decision was a compromise between those members seeking more cuts and those that were opposed to additional cuts.
"OPEC wants to signal a cut, but many members don't want to reduce output. It's a fudge which gets round the market and reconciles the two different views on what the group should do," Geoff Pyne, an independent oil analyst, told Reuters. "If more cuts are needed, then surely that proves that half the group didn't comply with the cuts last time. So why should those that did cut do so again?"
OPEC's decision will reduce production by 500,000 barrels a day, the report stated. The organization was warned by the International Energy Agency that the previous cut it made in October -- of 1.2 million barrels per day -- was already restraining the market.
However, Reuters estimates that OPEC has enforced only two thirds of October's 1.2 million barrel cut, which took effect on Nov. 1.
The decision to enforce the cuts in February will affect March delivery price, Harry Tchilinguirian, an analyst at BNP Paribas, told Reuters. "OPEC generally points to weaker product demand in the second quarter as the driving factor for a cut."
OPEC members Iran and Venezuela expect prices to remain above $60 as a result of the cut yesterday. However, another member of OPEC, Saudi Arabia, insisted that price was not a factor in the decision. "The market is out of balance. Stocks are at more than a five-year high," Daukoru told Reuters.
Daukoru's statement clashes with U.S. government data that was released the day prior that found that showed crude stocks fell last week by 4.3 million barrels, the report stated.