BBC Wednesday, 25 July, 2001, 16:06 GMT 17:06 UK Opec cuts oil production

Opec limits the amount of oil drilled by members The world's leading oil producers have agreed to take emergency action to push oil prices higher.

In its third cut so far this year, the Opec cartel will reduce output by one million barrels a day from the beginning of September.

The 11-member cartel controls the amount of oil that flows into the market in order to keep prices at the levels it wants.

By cutting production and limiting supply, Opec hopes to prop up the falling price of crude oil in the international markets.

This will also have a knock-on effect on petrol prices at pumps throughout the world, increasing consumer discontent.

US concern

And energy price inflation could harm many of the world's industrialised powers which are already battling against an economic slowdown.

US President George Bush expressed concern about Opec's decision:

"The US economy is bumping along right now and a run-up in energy prices would hurt."

"It's very important to have stability in the marketplace," added Mr Bush, reflecting a view that Opec itself holds.

Emergency mechanism

The cartel normally agrees cuts during its official meetings in Vienna, but has chosen to take emergency action because of the weakness of the oil price.

Opec has created a mechanism to artificially control the price of a basket of seven crude oils and keep it within a desired range of $22-28 a barrel.

The price of this selection of crude oils was at $23.5 on Wednesday, a price that some member countries feel is too low.

The one million cut comes on top of previous cuts of 2.5 million barrels a day, meaning that total output is now 13% lower than last year.

But weaker demand for oil and petrol around the world has kept the crude price well below last year's highs of $35 a barrel.

Rising Brent

The action of Opec has succeeded in preventing the oil price falling to the lows of about $10 a barrel seen in 1999.

In London, the benchmark Brent crude oil rose 40 cents or 1.6% to $25.30 a barrel.

In New York trading, crude oil moved 19 cents higher to $26.50 a barrel after the floor opened.

Excluding Iraq, the member nations of the cartel together account for 40% of the world's crude oil production.

-- Anonymous, July 25, 2001

Answers

WRAL-TV

Bush Unhappy About OPEC Production Cut

OPEC Aims To Keep Oil Prices High

LONDON, 1:56 p.m. EDT July 25, 2001 -- OPEC's decision to slash oil output isn't going over well at the White House. President Bush says production cuts and a consequent rise in fuel prices could be damaging. A source at OPEC's headquarters says the oil cartel has formally agreed to slash output by at least a million barrels a day. The decision to take their target level down by four percent is aimed at keeping a floor under prices. The decision, reportedly by all eleven member countries, is to take effect September first. They hope to keep crude prices at around $25 a barrel. The source says the ministers discussed the matter over telephone. As result, the source says OPEC won't need to hold an emergency meeting next month in Vienna. Bush cautions that the U.S. economy "is bumping along" and says a run-up in energy prices would hurt. He adds that OPEC leaders know that. He spoke before the beginning of a meeting with members of Congress concerned with foreign policy issues. He's briefing them on his recent European trip. OPEC pumps about 40 percent of the world's oil. It has already reduced its official production twice this year by a total of 2.5 million barrels a day. Cartel members have been voicing increased concern in recent days about the weakening trend in oil prices. September crude futures were trading above $26 a barrel in New York today.

-- Anonymous, July 25, 2001