Making less oil to make more money

The New York Times has an article by Jad Mouawad about OPEC's problems:

The OPEC cartel agreed on Wednesday to reduce production by 2.2 million barrels a day, the group’s largest cut ever, in an effort to put a floor on falling oil prices. It is the third time producers have agreed to reduce their output in three months. Since September, members of the Organization of the Petroleum Exporting Countries have pledged cuts totaling 4.2 million barrels a day, or nearly 12 percent of their capacity, a record in such a short time. But oil futures fell more than 3.5 percent, to $41.99 a barrel, oas the market focused on the dire state of the global economy and many experts doubted that OPEC would manage to carry out its promises, leaving markets oversupplied in the face of falling demand.
After riding a wave of rising oil prices for nearly a decade, the world’s top exporters are struggling in a weakening global economy, a dizzying slump in oil consumption, and a sharp downfall in prices. In a move reminiscent of 1998, when oil fell below $10 a barrel, OPEC has asked outside producers to trim their production, but seems to have found few takers. “We want non-OPEC countries to contribute, and not just benefit from the impact of our cuts,” Chakib Khelil, OPEC’s current president, said after the meeting, which was held under tight security in the coastal Algerian town of Oran. “It’s in their own interest as well as in ours.” Mr. Khelil said the group wanted to “eliminate” an overhang of commercial oil inventories, which now stand at 57 days of supplies, down to 52 days, and aimed to push prices up to $70 to $80 a barrel. “We have five days of excessive stocks that could really lead to a collapse in prices,” Mr. Khelil said during a chaotic and confused news conference after the meeting.
Russia, which is not part of OPEC, sent a large delegation to Algeria, but analysts saw this as a gesture of political support that carried little more than symbolic value. Russian oil production is going to decline this year anyway because of government policies that have discouraged investments and harmed domestic producers.
The oil collapse has brought down gasoline prices for consumers, but it is devastating to producers, who have based their budgets for next year assuming prices well above $50 a barrel.
The Saudi oil minister, Ali al-Naimi, set the tone on Tuesday as he arrived in Algeria, when he proposed a large cut to balance the market and trim commercial oil inventories that have been swelling well above their historic levels. Other representatives quickly backed the proposal. The Saudis had until now been wary of acting too aggressively lest they derail any economic recovery. In June, as prices were still rising, they pledged to flood the market to prevent prices from spiking. But that did not prevent oil from rising above $145 a barrel the following month. Now, with the economy seizing up, the Saudis seem to have become much more concerned with the drop in prices, and their ability to prevent a complete collapse. Oil has fallen by $100 a barrel, or 70 percent, since peaking five months ago. King Abdullah recently said he would like to see prices at $75 a barrel, more than 50 percent above than their current levels.
The cartel has not faced such a challenging environment since the early 1980s. Oil consumption is set to decline for the first time in 25 years because of the economic crisis. The new target sets OPEC’s production at 24.85 million barrels a day, starting 1 January.

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