Iran calls for production cuts as oil price plummets

Carl Mortished,
London Times
Tuesday, Sept 3, 2008

The price of crude oil tumbled yesterday in the futures markets as the destructive force of Hurricane Gustav dwindled.

Traders are focused again on the weakening global economy and panicky behaviour is being detected within Opec, suggesting that some cartel members fear that the oil price could crash. The gloom in the commodities markets pushed the price of US light crude as low as $105.46 per barrel yesterday, a $10 fall. Iran, the most hawkish member of the oil cartel, called for agreement next week on a cut of 1.5 million barrels per day in output.

Crude oil has lost more than a quarter of its value since the price peak in July of $147 per barrel. Stock markets surged in Europe and North America yesterday, with big boosts for bank shares and airlines, whose profits have crumbled under the heavy cost of fuel. The weakening of Hurricane Gustav raised hopes that oil installations in the Gulf of Mexico and Texan refineries had been spared serious damage. US light crude recovered after its initial fall to $109, down $6 per barrel, while Brent fell to $104 per barrel at one stage, recovering to $107.

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Opec’s more aggressive members are already speaking of production cuts. Venezuela and Iran have said that $100 per barrel is a benchmark they will defend and an Iranian official said yesterday that as a first step the cartel’s members must stop exceeding production quotas, which would imply an immediate cut of about half a million barrels per day.

Oil analysts doubted that Opec would agree to an output cut at its conference in Vienna on September 9, but unease over the price fall is being seen even in Saudi Arabia, the most moderate Opec member. Saudi Aramco has been cutting the discount at which it sells Arab heavy, a poor-quality crude which it uses to calm the oil price, off- ering large quantities at big discounts.

Leo Drollas, of the Centre for Global Energy Studies, said: “[The Saudis] . . . fear heavy oil price falls. They are trying to anticipate that by not putting much oil on the market.”

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