Related: Oil Plunges to 40 Dollars on Disappointing OPEC Cut

News Analysis: OPEC Makes Deepest-ever Cut to Shore Up Prices, But No Quick Fix

The Organization of Petroleum Exporting Countries (OPEC) Wednesday announced an oil output cut of 2.2 million barrels per day (bpd) from Jan. 1 next year, the deepest-ever reduction prompted by tumbling prices and flagging market.

In light of observing "crude volumes entering the market remain well in excess of actual demand," the cartel "agreed to cut 4.2 million bpd from the actual September 2008 OPEC-11 production of 29.045 million bpd, effective from Jan. 1, 2009," said Chakib Khelil, the current OPEC rotating president.

In addition to the previous cut of 2 million bpd in September and October, OPEC's total output cut in 2008 would be 4.2 million bpd.

The historic decision was made after consultations among all 13 oil ministers of the cartel during an extraordinary ministerial meeting in western Algerian coastal city of Oran.

During the one-day meeting, OPEC members also reached consensus on the distribution of the overall output cut among them. The OPEC members strongly emphasized their firm commitment to ensuring that their production is reduced by the individually agreed amounts, Khelil said.

CUTTING OUTPUT TO RESCUE OIL PRICES

The slash of oil production is aimed to address the slumping oil prices, which have shrunk more than two thirds from record mid- July peak above 147 U.S. dollars.

The Paris-based International Energy Agency said in a recent report that global oil demand will shrink this year to 85.8 million barrels a day for the first time since 1983. It predicted that the demand in 2009 would increase by merely 0.5 percent to 86. 3 million barrels a day.

"The impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices," said Khelil, who is also Algeria's energy minister.

"Prices could fall to levels which would place at jeopardy the investments required to guarantee adequate energy supplies in the medium to long term," he added.

Since September, the oil cartel had made two coordinated cuts to shore up the plunging prices. A modest cut of 520,000 bpd was made on Sept. 10 and then a 1.5-million one was announced on Oct. 24 in its Vienna meeting.

Yet investors brushed off the two moves as the global economic slowdown worsened, which has ravaged demand for energy. After hitting 40.50 dollars a barrel on Dec. 5, the lowest in four years, the crude continued to be traded at lows so far this month, sparking panic among the cartel's members about their slumping revenues.

Saudi Arabia, the world's biggest oil exporter, has said the oil prices at 75 dollars are fair.

NON-OPEC COUNTRIES ASKED TO COORDINATE EFFORTS

As delegations from non-OPEC countries of Russia, Oman, Azerbaijan and Syria also attended the Oran meeting as observers, the oil bloc appealed for coordinated efforts to reduce output from non-OPEC members.

"We renew our call on the non-OPEC producers and exporters to cooperate with the Organization to support oil market stabilization," Khelil said.

Russian Vice Prime Minister Igor Sechin said at the meeting that Russia will reduce its oil supply next year if the prices remain hovering at lows in the world market. "Russia is considering reducing the supply volume by 16 million tons next year, which equals to 320,000 barrels per day."

Sechin, however, did not express Russia's willingness to join the oil bloc.

The largest non-OPEC exporter has said last week Russia is ready to join hands with OPEC to rein in the plunging prices and could even become part of the oil cartel if membership were in Moscow's interests.

The next OPEC ordinary meeting will be held on March 15, 2009 in Vienna, the oil bloc's headquarters.

OPEC comprises Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

The production cut decision involves only 11 nations, known as the OPEC-11, as Indonesia, which has suspended membership, would officially leave the cartel at the end of 2008 and Iraq is not subject to the quota system due to chaos in the country.