OPEC Says It Will Cut Oil Output

VIENNA — Stung by what it called “a dramatic collapse” in crude prices, the OPEC cartel said on Friday that it would reduce output by a steeper-than-expected 1.5 million barrels a day. But that action failed to brake the price decline, and oil dropped 5 percent more by the end of the day.The oil cartel swiftly agreed to the cut in an emergency meeting at its headquarters here, and its president suggested afterward that still more production cuts were coming as OPEC struggled to get ahead of an economic slowdown so severe it could leave the world awash in oil.

The stunning decline of oil prices in recent weeks has left oil-exporting countries fearful that they will have to cut government budgets, including the popular social programs that cement many leaders’ hold on power.

Oil dropped to $64.15 a barrel on Friday, from a high close of $145.29 on July 3, a 56 percent decline in 16 weeks and one of the steepest in the oil markets.

If prices keep falling, OPEC’s president, Chakib Khelil, said the cartel would “definitely” reduce its production again in coming months, either when it meets in Algeria in December, or sooner.

“The fundamentals are not good,” Mr. Khelil, who is also Algeria’s oil minister, said in an interview after the meeting. “This is a crisis situation.”

In a rare appeal that highlights the urgency of the situation for producers, the cartel is also starting to look beyond its ranks for help in stabilizing the market. OPEC called on other oil-producing countries to “contribute to efforts to restore prices to reasonable levels, and eliminate harmful and unnecessary fluctuations.” OPEC’s members control 40 percent of the world’s oil exports.

Members of the Organization of the Petroleum Exporting Countries face their toughest test in years. The slowing global economy has depressed the consumption of oil in the United States, Europe and Japan, and the global economic turmoil risks spreading to emerging economies like China, long the main engine of growth in oil demand. OPEC members said they had little choice but to reduce production to avert a glut.

“OPEC has been slow to grasp the full impact of the financial crisis on the real economy, and it dawned on them all of a sudden,” said Vera de Ladoucette, an energy analyst based in Paris at Cambridge Energy Research Associates, of Cambridge, Mass. “There is definitely a new sense of urgency.”

Despite OPEC’s ability to forge a rapid consensus on Friday, members of the cartel know they are navigating perilous seas. For consumers, falling commodity prices have been one of the only positive developments in a profoundly depressed economic landscape. If OPEC’s cut eventually sends oil prices higher, that would be another blow to the global economy.

“They are walking a very, very fine line,” said Jan Stuart, an energy economist at UBS in New York.

The cut was criticized by the White House, which called it “anticompetitive,” and by the British prime minister, Gordon Brown.

Many analysts expect global oil consumption to fall this year, for the first time since 1983. Oil consumption in developed countries has dropped for the last three years, and there are signs that the growth in energy demand from developing nations is beginning to slow.

OPEC’s action comes just as domestic gasoline prices, for the first time this year, are lower than they were last year. They now average $2.78 a gallon, down from their peak of $4.11 on July 17. In some states with low taxes, gasoline has dropped below $2.50 a gallon.

Despite the lower prices, gasoline consumption is still down. Retail sales fell 6.4 percent last week compared with the same week a year earlier, according to a national survey by MasterCard Advisors.

OPEC meetings have often been contentious, daylong affairs with fierce divisions between rivals like Saudi Arabia and Iran. Before the session on Friday, experts predicted the cartel would cut 1 million barrels a day. Venezuela and Iran were pushing for a bigger daily reduction, of 2 million barrels.

But Mr. Khelil said this time, members agreed on the 1.5-million-barrel reduction with little argument. That cut, to take effect Nov. 1, amounts to about 5 percent of OPEC’s output and nearly 2 percent of global consumption.

Mr. Khelil said exporters were having trouble locating buyers for their crude, with some countries finding that normally reliable customers could not obtain letters of credit to finance their purchases because of the financial crisis.