By Alsir Sidahmed

OPEC's decision to trim oil production by one million barrels a day as of September 1 is uncharacteristic. Not only was such a decision taken through telephone consultations for the first time, but also it was initiated publicly by Saudi Arabia.

The Saudis used to conduct their consultations behind closed doors and keep their cards close to their chest until the last moment as a way of building consensus. But this time oil minister Ali al-Naimi was the first to declare the need to cut oil production by one million barrels to 1.5 million barrels per day (bpd).

Sensing a world economic slowdown and to avert repeating the slide of prices of 1997, Al-Naimi took the unusual step of pushing publicly for a production cut, building on the success of his close cooperation with fellow OPEC members and some non-OPEC producers, to defend the stated price band target of $22 to $28 per barrel. Significantly, a consensus is building around the mid-price of $25 a barrel that suits both producers and consumers.

Defending the oil price is now a group responsibility shouldered by a number of producers inside and outside OPEC, who are acting collectively as a "Swing Producer" led by the trio of Saudi Arabia, Venezuela and Mexico, a non-OPEC producer.

This tripartite, which has emerged as effective leaders of the oil market since 1998, provide the United States with some 40 percent of the foreign oil it consumes.

Despite the production cut that anticipates a slowing trend in demand, recent data from the Paris-based International Energy Agency and the U.S. Energy Information Administration (EIA) indicate that the economic slowdown may be bottoming out and that other elements such as low interest rates, low inflation and increased productivity all point to a higher demand forecast.

A March projection by EIA for the coming two decades forecasts that demand for crude oil is expected to rise from 74.9 million bpd in 1999 to 120 million bpd by 2020. Unlike the period 1970-1999, when non-OPEC producers provided the bulk of the 28.1 million bpd increase in demand, this time two thirds of needed supplies are expected to be provided by OPEC. Saudi Arabia's massive excess production capacity, currently standing at 10.5 million bpd, will be key to meeting surging demand when and if it starts to bite.

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