Opec yesterday brought forward to next week an emergency meeting to consider a cut in production after oil prices dropped to less than $70 a barrel for the first time in more than a year on worries about a global recession.
The move coincided with fresh calls from those countries within the oil producing cartel that are heavily dependent on oil revenues for their budgets - most notably Iran, the organisation's perennial hawk - to cut output. Ecuador and Qatar also supported slashing production.
Even Saudi Arabia, the cartel's most powerful member, which initially opposed the 500,000 barrel a day cut last month and is close to the US, appears to be in agreement that the group needs to cut production.
The kingdom, which boosted its output by far more than any other Opec member when prices were high and supply was struggling to keep up with demand, has already cut some shipments, according to ship tracking data.
Opec had said that it would need to pump about 31.3m barrels a day in the first quarter of next year to balance the market, well below its current output of 32.2m b/d, suggesting that the cartel sees a need to cut output by almost 1m b/d.
Ben Dell, of Sanford C. Bernstein a New York research firm, said Opec would need to make an additional cut of 1m barrels a day in order to avoid a glut in the market in 2009.
"Such a large cut in production is only likely to come from Saudi Arabia as the other Opec members are levered to higher oil prices in order to maintain their spending programmes," said Mr Dell in a report.
The meeting will be the biggest test in more than a decade of Opec's resolve and power to form a cohesive unit to stop tumbling prices. it will have to act decisively in its round of cuts because otherwise it runs the risk of pushing down prices even further as traders write it off as toothless.
Opec's decision to meet next Friday came after investors sold commodities en masse amid worries that the credit crunch had mutated into a global toxic economic crisis that would damp demand for raw materials. In its monthly report, the cartel said that even if governments were successful in unfreezing credit markets in the near future, "the fallout on the real economy from the financial market headwinds is expected to be -considerable".
Oil prices in New York yesterday fell to a 14-month low of $68.57 a barrel after the US department of energy reported a large drop in the country's oil consumption. It said total US oil demand averaged in the past four weeks at 18.6m barrels a day, 8.9 per cent below the same period a year ago.
West Texas Intermediate crude oil, the US benchmark, closed down $2.38 to $72.16 a barrel, while Brent, the European reference, was $2.58 down on the day at $70 a barrel.
