By Bruce Stanley
The Associated Press
VIENNA, Austria - Members of the OPEC oil cartel have agreed to make a pre-emptive cut in their production target for crude in an effort to bolster prices ahead of an expected decrease in demand early next year.
The Organization of Petroleum Exporting Countries decided Wednesday to lower its output ceiling by 900,000 barrels a day to 24.5 million barrels starting in November.
The 3.5 percent cut startled the financial markets:
Crude oil futures soared, with contracts of U.S. light, sweet crude for November delivery rising $1.11 to settle at $28.24 a barrel on the New York Mercantile Exchange.
The Nasdaq closed down 58.02, or 3.1 percent, at 1843.70, according to preliminary calculations. The last time the Nasdaq had a larger one-day loss was July 1, 2002, when it shed 59.41 to close at 1403.80.
The Dow Jones Industrial Average fell 150.53, or 1.6 percent, to 9425.51. The Standard & Poor's 500 index declined 19.65, or 1.9 percent, to 1009.38.
One analyst said he expected the action would keep consumer gasoline and heating oil prices near current levels. OPEC pumps about a third of the world's crude.
The surprise decision came after a meeting that also saw Iraq's return to OPEC for the first time since the ouster of Saddam Hussein, despite earlier objections from Venezuela.
Although the market is "well supplied," OPEC is taking preventive action to try to keep prices stable before an expected dip in seasonal demand in the first quarter of 2004, the group's spokesman, Omar Ibrahim, said.
At current output levels, OPEC predicts the daily supply of crude will outstrip demand by 2.5 million barrels by next April. Iranian oil minister Bijan Namdar Zanganeh, speaking earlier, called the cut a possible "first step" and did not rule out an additional reduction later in the year.
"It is better that we start before we witness a very bad situation in the market," he told reporters before the group's oil ministers met in private.
OPEC wants independent, non-OPEC producers such as Russia to take "concrete measures" to restrain their own output, Ibrahim said.
OPEC had been widely expected to keep its daily production ceiling at 25.4 million barrels. However, a recent slide in prices and OPEC's expectations of a surge in oil inventories among major importing countries have compounded its fears about a softening of the market.
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