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[Mark Jones <mark.jones@xxxxxxxxxxxxx>]

[the significance of this, if it happens, will be that this is the first
time Opec have managed to sustain the integrity of the cartel and its
armlock on the energy market *during a recession*. For those of us who are
doomsayers about oil, this represents a crucial turning point. For the
first time, the decline of world oil has accelerated faster than the
decline in output during a major recession, thus portending an era of
higher oil prices under almost any circumstances, and a vicious descending
spiral of economic decline. Time will tell. Mark]

FT: Opec to cut output by 1.5m b/d from January 1
By Heba Saleh in Cairo
Published: December 28 2001 18:20 | Last Updated: December 29 2001 00:52

Opec ministers on Friday agreed to cut world oil supply by 1.5m b/d for six
months starting next week after the cartel secured the unprecedented
agreement of five non-Opec rivals to trim their own production by 462,500 b/d.
Brent prices in London strengthened on the widely expected announcement by
54 cents on Friday to trade at $20.88, before closing down 4 cents at
$20.30. On Nymex, crude closed down 49 cents at $20.41.
Analysts said the size of the reductions and the pact between Opec and
non-Opec producers represented a strong message to markets.
"The whole idea is to tell markets that Opec and non-Opec producers are
serious. They do not like prices to be too low," said Robert Mabro director
of the Oxford Institute for Global Energy Studies.
Opec is aiming to lift prices as near as possible to its preferred range of
$22 -$28, equivalent to about $24 to $30 for Brent.
"In normal times we aim for $22-$28 but particularly after September 11 we
have to take account of the global economic downturn and its impact on
demand," said Opec Secretary General, Ali Rodriguez.
The cut is Opec's fourth in a year bringing down the cartel's production to
21.7 million b/d. In total, the cartel has trimmed supply by 19 percent or
5 million b/d.
This time, however, Opec made its cut conditional on reductions by non-Opec
producers. After some initial resistance, Russia, Mexico, Norway, Oman and
Angola agreed, spurred on by prices which had dipped to 17 dollars.
"They are all in the same boat. They need the cash," said Mr Mabro.
Nonetheless, as ever there is no guarantee that producers both within or
outside the cartel will abide by the new quotas. "They usually do not
adhere 100 percent," said Mohammed Ali Zainy, a senior economist at the
Centre for Global Energy Studies."The end result [ for Opec production]
might be a cutback of 800,000 b/d."
The centre expects crude prices to be at around $19 dollars for the first
quarter rising to $22 in the second quarter.
In an effort to set a good example, Opec heavyweight and the world's
largest oil producer, Saudi Arabia, said it was lowering crude sales
immediately. Iran and the United Arab Emirates are quoted as saying they
would do their best to follow suit.
However in recent months, Nigeria, a cartel member, has accounted by itself
for half of Opec's overproduction. The West African country has been
exceeding its quota by 300,000 b/d.
Analysts say non-Opec Mexico and Norway have good records of respecting
their commitments to the cartel. Overall, however, Mr Zaini said the
compliance of non-Opec producers would be "tenuous at best."
A particular concern for Opec is Russian compliance. The country has
pledged a 150,000 b/d cutback for the 1st quarter of next year. Some
analysts are sceptical that this is no more than Russia's traditional
winter cutback and that come the spring production will rise again.
Also some Russian private sector producers have made clear they would try
to get around the restrictions by increased exports of refined oil products.
Mr Rodriguez and the incoming Opec President Rilwanu Lukman are travelling
to Russia in January where they are expected to try to convince the
government to extend the cutbacks until the end of the second quarter.

from FT.com