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Just when it appeared safe to go back to the pumps, OPEC oil ministers yesterday agreed to cut crude oil output by 1 million barrels a day, approximately 4 percent of its official target level.
The decision by the 11-member oil cartel is aimed at supporting crude prices at around $25 a barrel in the face of eroding demand in the group's key markets in the United States, Europe and Asia. The cut is to take effect Sept. 1, according to the Associated Press.
Energy analysts said the move would indeed shore up prices, but not to the point of causing serious pain for consumers in importing countries. "You will see a temporary rally," said Edward Ennis, an oil industry analyst with London-based SG Securities, told the Associated Press. "It will not stop the decline in crude price."
OPEC, which pumps about 40 percent of the world's oil, has a current production target of 24.2 million barrels a day. It has already reduced its official target twice this year by a total of 2.5 million barrels a day.
OPEC is anxious to keep its benchmark crude price at no less than $25 a barrel. "From what the balance of supply and demand looks like for the fall, they'll achieve that,'' said Jan Stuart, head of energy research for New York-based ABN AMRO. At the very least, Stuart said, OPEC will succeed in putting "a floor" under crude prices.
Saudi Arabia, OPEC's most powerful member, was among those backing a cut of 1 million daily barrels, the report said. Even with the output reduction, Stuart suggested that heating oil prices in the U.S. this winter might still be lower than last year thanks to what the oil cartel described as "plentiful" inventories.