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OPEC Slashes Production

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The Associated Press

The Tampa Tribune

Published: December 18, 2008

ORAN, Algeria - OPEC on Wednesday agreed to slash 2.2 million barrels from its daily production - its single largest cut ever - while bloc outsiders Russia and Azerbaijan announced their own cutbacks of hundreds of thousands of barrels from the market.

"I hope we surprised you," OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. "If you're not surprised, we need to do something about it."

And yet markets weren't impressed.

Crude oil sank to $40.06 after the announcement, a level not seen since the summer of 2004 and a clear sign investors are more worried that the world is heading for a long and painful recession in which energy use will continue to erode.

In just five months, crude has given up all of the price gains made during the past four years.

Making matters worse for OPEC, Moscow distanced itself from direct ties with the 13-nation producers' group, further dampening OPEC hopes of coordinated production cuts that might put a floor under crude prices.

Focusing on the shrinking oil market, OPEC noted in its statement that "crude volumes entering the market remain well in excess of actual demand."

"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," it said.

In addition to signaling that a major cut was in the offing in the days leading up to the Oran conference, OPEC ministers had expressed hope that Russia - the No. 2 producer after Saudi Arabia - would join in a significant cutback that would bolster prices.

Such support would be significant. Non-OPEC members Mexico, Norway and Russia last slashed production in the late 1990s, at a time oil was selling for about $10 a barrel.

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