OPEC cuts oil production quotas

| 9/29/2003

In a surprise move, OPEC this week slashed production quotas for its members – which immediately affected oil prices and energy stocks.

At its Vienna meeting, the 11-member cartel, which controls nearly 40 percent of the world's oil production, moved to shore up sagging oil prices by cutting its production target by 900,000 barrels a day to 24.5 million barrels a day.

The result was that oil prices experienced their biggest one-day jump in nearly two months, rising $1.11 a barrel to $28.24 in New York Mercantile Exchange trading. The move is expected to lead to rising crude oil prices and higher fuel prices at the pump –which would reduce a four-week decline in average diesel prices.

According to press reports, the move shocked analysts, who expected little change, even though oil prices had fallen about 15 percent the past month. The meeting was supposed to result in no change to quotas, despite expected production gains in Iraq, Venezuela and elsewhere.

The group's goal has been to keep the price of the crude its members produce between $22 and $28 a barrel. Recent prices for what's known as the "OPEC basket" had been at $25.14 Sept. 23.

When commodity prices are expected to fall, as they have been this month, speculators sell oil they don't yet own with a plan to buy the commodity at a lower price in the future to cover what was borrowed.