Opec plans further production cuts

Oil prices fell below $50 a barrel yesterday for only the second time this year, while commentators reviewed Opec’s decision to defer further cuts in crude output until later this month. Oil prices fell last week as traders awaited the outcome of Opec’s weekend meeting, and dropped more than 8.5% on the day after the meeting. Businesses and investors working within the oil energy sector, particularly those operating in Opec countries are likely to be interested in developments this month concerning production quotas for Opec members.

Many expect the cartel to settle its decision on production cuts at its meeting in Oran, Algeria on 17 December 2008. Opec officials emphasised the cartel’s general consensus for action in December. Certain Opec members are concerned that all the cartel’s members should achieve full compliance with their share of present quotas prior to the meeting, especially given the current market conditions.

Opec’s decision reinforced concerns about a slowdown in global demand. Algeria’s energy minister and Opec’s president recently noted that some countries are facing difficulties selling their oil, resulting in more oil being held in storage. Given that the markets are currently over-supplied, some analysts have criticised the cartel’s decision.

We now await, with interest, the outcome of the cartel’s meeting on 17 December.

To view our law-now article entitled ‘Renewed calls for Opec to cut supply’, dated 18 November 2007, please click here.

To view our law-now article entitled ‘Oil Tumbles despite OPEC Output Cut’, dated 3 November 2008, please click here.

To read our law-now article entitled ‘Taking the strain - the impact of the volatile oil price on natural gas prices’, dated 8 October 2008, please click here.