OPEC hawks weaken move to prop up oil price
OPEC oil ministers are fighting a last-minute, back-to-the-wall campaign to stop oil prices being cut by $2 a barrel or more over the next two months, say oil analysts here.
The only way the official OPEC price of $34 a barrel can now be maintained in the face of low demand, the analysts agree, is for OPEC members to force themselves to accept production quotas.
The object of the OPEC meeting set for Geneva Jan. 23 is to allocate such quotas under a ceiling of no more than 18.5 million barrels per day (b.p.d.).
But it cannot be done, a number of analysts here believe. Iran, Venezuela, and Libya are currently producing far above the quotas set last March. Each depends on oil revenue, and none show real willingness to cut back.
The feeling here is that they might agree on paper in Geneva. Their aim would be to present a strong OPEC facade. Oil stocks began to jump in New York and London markets Jan. 20 as traders came to believe an agreement would be reached.
It was uncertain at time of writing whether Iran - which reportedly needs $4 billion this year for its war with Iraq - would attend the Geneva meeting. Iran's quota last March was 1.2 million b.p.d. But sources report it is producing 3.2 million b.p.d. and selling the oil for about $30 a barrel.
Venezuelan officials say they cannot accept less than 1.9 million b.p.d. (its March quota was 1.5 million). Its economy is shaky and it has a short-term debt of $8.5 billion.
Libya, a traditional maverick, is seen as certain to keep its production above its March quota of 750 million b.p.d., despite public indications that it will defend the $34 price.
''So a paper agreement in Geneva probably will not last. The Saudis will have to cut prices,'' comments one oil analyst in touch with market and production trends.
Oil demand is being held down by warmer-than-usual weather in the Northern Hemisphere, by the world recession, and by energy conservation. Oil companies still have stocks on hand. The 13 OPEC nations are now producing only about 18 million b.p.d., down from 19.4 million b.p.d. in November.
The key country to watch is Saudi Arabia. With Iran, Venezuela, and Libya producing so much, the Saudis have had to sharply reduce their own production. Eighteen months ago Saudi Arabia was producing more than 8 million b.p.d. Today, analysts here say it is producing 4-to-4.5 million b.p.d.
''That's much lower than just before the recent OPEC meeting in Vienna - and it makes the Geneva meeting the most crucial yet,'' comments one analyst.
The lower Saudi production falls, the less influence Saudi Oil Minister Ahmad Zaki Yamani has to prevent prices sliding. Iran is currently selling oil for around $28 a barrel, $6 below the official price.
''The Saudis are taking the brunt of quota cuts,'' says the analyst, ''but they cannot do so for much longer. I see prices being cut, officially, within a couple of months.''
Other sources, in and out of the oil industry, have been predicting a fall of up to $4 a barrel since December. They see no reason to alter their predictions now. OPEC unity suffers when world demand falls, and demand will drop off even more in the spring, as it usually does in warmer weather.