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24 Oct, 2008 08:51

OPEC pares production as crude prices slump

The Organisation of Petroleum Exporting Countries, has decided to cut output by 1.5 million barrels a day as of next month in an attempt to shore up sagging prices.

OPEC members account for 40 percent of the world's oil output. They voted to cut production in response to a fast-slowing global economy – as major producers slide into recession.  The cut disappointed the markets – and OPEC President, Chakib Khelil, was quick to point out the cut is bigger than it first seems.

“In addition I think I will just make a note that it's not just 1.5, it's probably 1.8, because there are 300-thousand that needs to be cut and that are being cut right now.  So before the end of the year we'll have 1.8 out of the market.”

Expectations of falling demand dragged the oil price close to $60 a barrel this week. The OPEC president says there is no target price for crude, and that that it will be decided by the market.  But he called on oil exporters outside OPEC to do their bit to support the price.

This week Russia's energy minister said the country does not plan on reducing its output. Ron Smith, Head of Research at Alfa-Bank, believes Russia may be asked to cut output if OPEC decides further cuts will be necessary.

“At this point they will not be asking Russia, this is what they're officially saying – we're not asking Russia to help.  If further cuts are necessary, I think they will ask to cut a few hundred thousand barrels a day.”

Signs of collapsing demand were everywhere on Friday, with global carmakers announcing plans to slash production over coming months.

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