Nudging OPEC members into line

Dr. Mana Saeed al-Otaiba, the United Arab Emirates oil minister, faced a difficult problem on his return from the OPEC meeting in Vienna last March.

Because of the continuing sluggish demand for OPEC oil, the Organization of Petroleum Exporting Countries agreed to establish a 17.5 million-barrel-a-day production quota for the organization. The U.A.E.'s quota was 1 million bpd.

That would mean paring back almost 400,000 bpd of U.A.E. oil production to help dry up the glutted oil market.

Dr. Otaiba's problem of cutting U.A.E. production was compounded by the fact that under the Emirates' provisional constitution of 1971, each emirate retains complete control over its own mineral resources.

Though Dr. Otaiba's title is oil minister, the only emirate where he has complete control of oil production is Abu Dhabi.

The other two oil-producing emirates - Dubai, with 350,000 bpd, and Sharjah, with about 10,000 - determine their own production.

Thus, Dr. Otaiba, who is chairman of the OPEC production monitoring committee , had three main options. He could simply ignore his limit; he could order the entire 400,000 bpd cut from Abu Dhabi production (then at just over 1 million bpd); or he could divide the cut equitably among the three oil-producing emirates.

That was several months ago. Today, all that is known is that production figures are no longer published for Abu Dhabi, and the productions of Sharjah and Dubai have continued at the same levels.

Estimates place Abu Dhabi's production at about 850,000 bpd, down from more than 1 million before the OPEC quota. Total U.A.E. production in November was estimated at 1.2 million bpd, or about 200,000 barrels over the quota.

When asked about this, Dr. Otaiba said: ''We have a quota of 1 million barrels a day and we are producing 1 million barrels a day.'' He added, ''I am not only the oil minister of the U.A.E., I am also the chairman of the Ministerial Monitoring Committee, and if I felt there was something wrong here I would be the first to adjust it.'' He called reports of U.A.E. overproduction ''speculation.''

The quota was established in response to low demand for OPEC crude, which had fallen from 32 million bpd in late 1979 to 16 million bpd in May 1982.

And then, to compete in the weak market, several OPEC members began to sell below the set OPEC price and to produce over their assigned quotas. They were doing this largely to compete with North Sea crude and Mexican crude, both of which were being produced at high levels and sold below OPEC prices.

The resulting situation - of OPEC members undercutting OPEC - has kept the world oil market sluggish despite the advance of winter in the industrialized countries.

Efforts by the Gulf oil states within OPEC - Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates - to pressure members to abide by their quotas and OPEC prices have largely been unsuccessful. The Gulf states have even threatened a production and price war, if necessary, to bring the other OPEC producers into a unified position.

The Gulf states, with more than 300 billion barrels of oil reserves and relatively small populations, are in a much better position to weather the current weak oil market than, for example, Nigeria, which has a large population and whose development costs have been exceeding oil revenues.

Though Kuwait and the U.A.E. have announced that they face budget deficits this year for the first time as a result of declining oil revenues, the announcements are seen here as coming in part to deflect criticism of the Gulf states for not cutting their production even further.

The U.A.E. Central Bank also reported oil revenues for the first half of 1982 down 18.7 percent, to $7.87 billion, compared with the same period last year. Observers here say it is difficult to see how the weak oil market has affected the U.A.E. Most said they had seen no effect at all so far.

And Oil Minister Otaiba says, ''If you look at the overall situation, I don't think it can be compared to Nigeria or Mexico. I think our present quota is the minimum, and we cannot live with this. We have so many commitments internally and externally and we have to raise our production sometime in the near future.''

Other government officials describe the cut in oil production and lower revenues as providing the U.A.E. a necessary chance to reevaluate its development plans and to set stricter priorities for government spending. There are indications that some large projects are being pared down or delayed.

Dr. Otaiba, like most other OPEC officials, is projecting a slight increase in demand for OPEC oil from 19 million bpd in November to between 20 and 21 million barrels in December. But he sees demand falling again next year and the market remaining sluggish for most of 1983.

If the increase in demand is sustained, Dr. Otaiba says, the quotas will be recalculated, and that might help ease the tension.

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