(RFE/RL) -- The Organization Of Petroleum Exporting Countries (OPEC) has announced a significant cut in oil production in a bid to lift falling crude prices.
OPEC and non-OPEC oil exporters have taken action that could remove up to 2.6 million barrels of oil from the market every day in an attempt to boost prices and, thus, the incomes of producers.
Saudi Arabia's oil minister, Ali al-Naimi, says OPEC -- whose 12 member states together provide 40 percent of world oil supplies -- has agreed to cut production by 2 million barrels a day. It is the largest-ever production cut by OPEC, equivalent to about 7 percent of its current output quota of 27.3 million barrels a day:
"You know that supply is still somewhat in excess because of the financial situation," al-Naimi said. "Inventories are also higher than normal."
OPEC ministers called the meeting to halt a steady price decline of more than $100 since July when oil peaked at about $147 per barrel.
The falling oil price is linked to global financial sector turmoil, brought on the by U.S. subprime-mortgage crisis, and its spread to the broader economy. That's because the demand for oil in recession-hit industrialized countries has fallen.
Just before the talks began, two non-OPEC exporters, Russia and Azerbaijan, announced that they were ready to cut their own oil production by about 300,000 barrels a day each.
OPEC officials had appealed earlier to nonmember producers for help to stabilize the market. OPEC Secretary-General Abdalla Salem el-Badri earlier said he wanted to see a cut of 500,000-600,000 barrels a day by nonmembers.
Analysts say OPEC's ability to influence global oil prices ultimately depends on whether the market believes the group will actually limit its production.
OPEC's effectiveness is contingent upon members obeying quota levels. When prices and revenues are falling, there is a particular need for discipline. But some producers cheat at the expense of others by failing to implement production cuts, thereby increasing their revenues.
But analysts warn that whatever steps are taken by OPEC to reduce the oil supply and shore up prices ultimately could cause demand to fall further. That means decision to spark a price rise could turn out to be counter to the best interests of the cartel's members.
with agency reports