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Opec shocks oil market with cut in output

Iranian Oil Minister Bijan Namdar Zanghaneh confirmed to reporters that, "Yes", the grouping would change its official output ceiling of 25.4 million barrels per day (bpd).

A source close to Opec said the amount of the cut was 900,000 bpd, bringing the output ceiling down to 24.5 million bpd.

The 11 Opec oil ministers were expected to adopt the cut at a formal meeting later in the day.

News of the surprise move came as Iraqi interim Oil Minister Ibrahim Bahr Al Ulum announced that Iraq would remain a member of the Opec oil group, pouring cold water on speculation it might leave the fold.

He said Iraqi oil exports, currently at 900,000 bpd, were planned to double to 1.8 million bpd by the end of March.

News of the Opec cut came as a surprise to oil market traders, who had widely expected the grouping to leave output levels unchanged in the fourth quarter of this year.

Consumer countries had called for an output increase to help to rebuild their low stocks as winter looms in the northern hemisphere.

Oil prices shot higher in London, with benchmark Brent North Sea crude oil for November delivery showing a gain of 83 cents a barrel to $26.35 within minutes of the news.

World oil prices had fallen by about 15 per cent in around a month ahead of the meeting, taking Opec's basket price of seven crudes back into its target range of $22 to $28 per barrel.

Opec's comments came as Iraq attended its first meeting of the group since the US-led war to unseat Saddam Hussein, marking a new step towards international recognition for the US-backed interim government in Baghdad.

Opec is keen to see Iraq, sitting atop the world's second-biggest known crude oil reserves, remain in the fold of the grouping, which produces about one third of the world's oil.

Iraq will remain a member of the Opec oil group while at the same time significantly boosting output by the end of this decade, Bahr Al Uloum told a Press conference.

"Iraq as a founder member of Opec has always been consistently defending Opec aims and objectives . . . Iraq will continue to do so," he said.

The minister laid out an ambitious plan to get the Iraqi oil industry back at full speed, talking of doubling production by 2005.

He said current production was 1.8 million barrels per day (bpd), two thirds of pre-war levels, something he called "a great achievement by any standard."

The goal is to get to two million bpd by December, 2.8 million bpd by the end of March, 3.5-4 million bpd by 2005 and to six million bpd by the end of the decade.

"It is now no secret we intend to develop fast our huge resources with the help of the (world) oil industry and other investors," Bahr Al Uloum said.

Asked if Iraq would favour US firms in rehabilitating its oil industry, he said: "We welcome all foreign oil companies."

However, Iraq is not yet expected to re-enter the group's quota system, from which it was exempted after UN sanctions, lifted in May, were imposed on Baghdad following its 1990 invasion of Kuwait.

The ramshackle state of the Iraqi oil industry, ravaged by three wars in a quarter century, decades of under-investment as well as recent sabotage and looting, has stymied a recovery in the country's crude exports.

But with 112 billion barrels of oil, Iraq has the world's second-largest reserves after Saudi Arabia, according to the London-based Centre for Global Energy Studies.