OPEC said Friday it will slash oil output by 1.5 million barrels a day from November 1 as it seeks to shore up crude prices, triggering a verbal backlash from recession-threatened Britain and the United States.
The White House denounced what it called OPEC’s “anti-market” decision to cut production following the cartel’s emergency meeting in Vienna on Friday, even though oil prices subsequently slumped to 17-month lows on fears of a global recession.
British Prime Minister Gordon Brown was left “disappointed” by OPEC’s output reduction and urged oil producers to show a responsible attitude in the current crisis, his spokesman said.
Analysts had expected the Organization of Petroleum Exporting Countries to cut its daily output by at least one million barrels per day as a global economic slowdown amid a worsening financial crisis reduces demand for energy.
Global stock markets plunged on Friday, with London losing more than nine percent as it struck a five-year low on news that Britain’s economy shrank in the third quarter, placing it perilously close to a recession.
OPEC, which produces 40 percent of world crude, announced a cut to production in a bid to support crude prices which “have witnessed a dramatic collapse — unprecedented in speed and magnitude,” according to an official statement from the cartel.
Yet after OPEC agreed to reduce its official output quota to 27.3 million barrels per day, the price of Brent North Sea crude sank close to 61 dollars, the lowest point since March 2007.
Crude futures in London and New York have plunged by almost 60 percent from record highs of above 147 dollars a barrel reached only three months ago when supply concerns sent prices soaring.
“Crude oil is heading lower again… on fears that the (OPEC) cut might not be sufficient to compensate the shortfall of demand due to a global recession,” said Dresdner Kleinwort analyst Peter Fertig.
OPEC said in its statement published alongside its decision to cut production that “the financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular.”
“Moreover, forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere.”
However White House spokeswoman Dana Perino said the United States desired “markets to be well supplied.”
She added: “The high oil prices from the past year contributed to the slowdown in demand and the subsequent downturn in the economy, and we would ask that everyone keep that in mind.”
White House spokesman Tony Fratto said in reference to OPEC’s cut: “It has always been our view that the value of commodities, including oil, should be determined in open, competitive markets, and not by these kinds of anti-market production decisions.”
In London, Prime Minister Brown’s spokesman said “OPEC needs to consider the impact that the decision will have on the world economy.”
He added it was important “that all decisions that are taken by the oil producers are designed to ensure there is long-term stability in the price of oil and transparency in pricing.”
Brown had angered OPEC nations ahead of the Vienna meeting by saying that a cut in production would be “scandalous.”
OPEC President Chakib Khelil on Friday insisted that the production cut would not hurt the global economy.
In Tehran the influential former president of Iran, OPEC’s second largest oil producer, called the world financial crisis a tsunami which has dragged down oil prices and caused a huge loss of revenue.
“This is the first wave of the tsunami to reach us. The oil price has fallen from 147 dollars a barrel to around 64 dollars. This is a huge loss” for Iran, Akbar Hashemi Rafsanjani said in a Friday prayer sermon on state radio.
OPEC, which comprises 12 member countries, added that its latest output decision would be reviewed at its next meeting in Oran, Algeria, on December 17.
In the meantime the cartel said it “cannot be expected to bear alone the burden of restoring equilibrium” between oil supply and demand, calling on “non-OPEC producers/exporters to contribute to efforts to restore prices to reasonable levels and eliminate harmful and unnecessary fluctuations.”