OPEC approves cutting oil production

? Seeking to keep prices up without having them explode, OPEC agreed Friday to reduce its daily oil output by 1 million barrels a day — and reserved the right to cut deeper early next year if crude turns much cheaper than now.

But traders said they were taking a wait-and-see attitude toward the pact, and sent oil prices sharply lower.

The move by the Organization of Petroleum Exporting Countries is intended to prevent further revenue losses amid falling prices, without creating the kind of volatility that rocketed prices up to record highs earlier this year — forcing producers to scramble to meet demand.

Saudi Oil Minister Ali Naimi said the cut would be implemented starting Jan. 1. He told reporters that OPEC would meet again in late January to review the cut’s effect on prices, which have fallen sharply recently but remain high above previous established levels.

If effective, the output reduction would scale back output to 27 million barrels a day, the group’s official production ceiling that OPEC has been exceeding for months now because of the high demand.

Benchmark U.S. crude futures have fallen by almost a quarter since the record prices of more than $55 a barrel in late October, as consuming nations have called on OPEC to keep output high to underpin economic recovery. The decline has been sharpest in the last week or so, spurred by increases in U.S. petroleum inventories, mild winter weather and little sign of a slowdown in OPEC output.

Abdallah bin Hamad al-Attiyah, minister of Energy and Industry from Qatar, talks about OPEC's decision to cut oil production. He said Friday that the organization wanted to stave off further falls in the world price while trying to avoid a new frenzy of buying.

In trading Friday, benchmark light, sweet crude oil futures for January dropped $1.82 to $40.71 a barrel on the New York Mercantile Exchange. In London, Brent crude oil for January fell $2.29 to $37.38 a barrel on the International Petroleum Exchange.

Marshall Steeves, energy analyst at the New York-based brokerage Refco Group Inc., said traders were not taking OPEC’s pledge to rein in production at face value.

“You have to see if the proof is in the pudding,” Steeves said, adding that it would be more than a month before the changes are felt in major consuming markets such as the United States.

A lot of the extra crude oil OPEC has been putting onto the market is high in sulfur content and, therefore, less desirable to many refiners. The loss of that supply is not so critical, Steeves said.