OPEC makes deepest oil cut ever to rescue pricesORAN, Algeria (Reuters) - OPEC oil ministers agreed their deepestoutput cut ever on Wednesday, slashing 2.2 million barrels per day fromoil markets in a race to balance supply with rapidly crumbling demandfor fuel.
The 12 members of the Organization of the Petroleum ExportingCountries were also aiming to build a floor under prices that havedropped more than $100 from a July peak above $147 a barrel.
The cut, effective January 1, comes atop existing curbs of 2 millionbpd agreed by OPEC since September. It lowers the supply target for the11 members bound by output limits to 24.845 million bpd -- down nearly15 percent from September output.
"I hope we surprised you -- if not, we have to do something aboutit," said OPEC President Chakib Khelil, host of the conference.
Oil fell more than $3 a barrel toward $40 following the deal afterweekly U.S. data showed inventories in the world's biggest consumercontinued to swell.
Washington quickly condemned OPEC's attempts to end cheaper oilprices. Its cut, the third this year, brings a total reduction in OPECsupply to 4.2 million bpd, taking nearly five percent of world supplyoff the market.
"OPEC has an obligation to keep the market well supplied and toconsider the health of the global economy, so efforts to limit thebenefits of lower energy prices are short-sighted," said White Housespokesman Tony Fratto.
A deepening recession is threatening to shrink world demand for twoyears running and fuel inventories are bulging. Prices already haveplunged by two-thirds since the summer and analysts say the oil marketis under the sway of world financial turmoil.
"The world economy is driving the price more than anything OPEC cando at this stage," said Gary Ross, CEO of consultancy PIRA Energy. "Itwill be hard for the cuts to have any traction with regard to price ina deteriorating economic environment."
OPEC's president said the group would do its utmost to ensure new restraints were strictly enforced.
"I can tell you it's going to be implemented and it's going to beimplemented very well because we do not have a choice," said Khelil,also Algeria's energy minister.
"If not, the situation is going to get worse."
Saudi Arabia, the world's biggest oil exporter, has led by example-- reducing supplies to customers even before a cut was agreed to helppush prices back toward the $75 level Saudi King Abdullah hasidentified as "fair."
"The purpose of the cut is to bring the market into balance andavoid the gyrations of the price," said Saudi Oil Minister Alial-Naimi. "The cut may lead to higher prices or may not."
FEELING THE PAIN
Oil below $50 is uncomfortable for all producing nations, butespecially for OPEC members Venezuela and Iran which are dependent onhigher prices to fund ambitious domestic programs.
OPEC hopes that a sharp supply cut will set oil on the path toward$75 -- a level the group believes is needed to encourage investment infuture supply.
"You must understand the purpose of the $75 price is for a much morenoble cause," the Saudi Oil Minister said. "You need every producer toproduce and marginal producers cannot produce at $40 a barrel."
The influential Saudi Oil Minister clearly outlined the kingdom's route to lower production.
It is pumping 8.2 million bpd against 9.7 million bpd in August.Saudi Arabia's implied output target is about 8.477 million bpd underexisting OPEC curbs.
To have a lasting price impact, any OPEC deal must to be strictly observed.
According to independent observers cited in OPEC's monthly report onTuesday, the group's compliance in November to existing cuts was onlyjust over 50 percent.
OPEC has encouraged other producers to cut back too. Russia andAzerbaijan attended the Oran meeting as observers and have said theycould rein in exports in future, but stopped short of am immediatepledge.
Leading a high level delegation, Russia's Deputy Prime Minister IgorSechin said in a speech to OPEC that Moscow did not plan to join incoordinated output cuts and did not want to join the group in theforeseeable future.