Battered oil regions pin modest hopes on OPEC
It has been a long haul for the people, companies, and governments that rely on oil wells. They've been in a five-year-long recession. It became especially rough two years ago when oil prices plunged below $10 a barrel. The survivors are learning to live with less, however, and are hoping they've seen bottom.
In Noble, Okla., for instance, the head of an oil-equipment firm reports brisker business.
``People at least can sharpen their pencils and evaluate their prospects again,'' says Adel Sheshtawy, president of Tri-Max Corporation, which manufactures oil drilling bits. ``The majors [big oil companies] are drilling again or are planning to start an active program. And we're doing more business.''
The number of drilling rigs in the United States, he notes, is about 1,500 today, up from 600 in 1986 - but still well below the record high of about 4,000 in 1981. Dr. Sheshtawy says that independent oil companies are not quite as confident as the majors, since private investors who finance independent operators remain skittish.
Economic damage in the oil regions has been heavy. The oil states of Texas, Louisiana, Oklahoma, and Arkansas last year accounted for 21 percent of business failures in the US, according to a report released this week by the American Petroleum Institute. Texas and Oklahoma continue to have the highest number of bank failures. But unemployment rates in these states have fallen in recent months, and business activity is picking up.
Among nations that depend on oil exports, the economic situation has also been improving. Though conditions are still tough in Mexico, Venezuela, Nigeria, Indonesia, and other indebted oil exporters, they are better than in the summer of 1986, when oil prices were in free fall.
``There's worry that things could get unstuck again,'' says Daniel Yergin of Cambridge Energy Research Associates in Cambridge, Mass. ``But there's certainly been the cost cutting and the contraction that occurs when an industry goes through a recession. So the organizations are more resilient, the survivors are tougher.''
The International Monetary Fund (IMF) forecasts a 1 to 2 percent increase in world oil demand this year. It's not much, but a robust US economy should help this trend.
Also helping matters, the Organization of Petroleum Exporting Countries is waging a successful media campaign to buoy oil prices, says Fereidun Fesharaki, an energy specialist with the East-West Center in Honolulu.
``The last OPEC meeting didn't succeed,'' he says, ``but it did show the value of `talking up' prices.''
In the spring, a group of non-OPEC oil countries proposed cooperating with the cartel, but OPEC could come to terms with production cuts. Dr. Fesharaki notes that OPEC's deferral of the matter until the midyear meeting, which begins June 11 in Vienna, left commodity speculators hanging. Traders were afraid to bid the price down too far.
Fesharaki says he expects at least a symbolic OPEC/non-OPEC agreement at the coming meeting. That will push crude to $20 a barrel between mid-June and mid-July, he says. While he sees some decline in the second half of the year, by year-end prices could be back at $20.
``We'd have a lower price if not for the expectation of an OPEC/non-OPEC agreement,'' agrees William Randol, director of equity research at First Boston Corporation in New York. ``But I have mixed feelings about oil prices.''
On the plus side, he says, Iraq, an OPEC member which has not been abiding by production quotas, is now talking about sharing in any OPEC production cuts. But a big negative is that OPEC members are cheating on quotas again and the cartel is overproducing by 1million barrels a day. And along with Kuwait, Saudi Arabian Oil Minister Hisham Nazer appears to be lobbying for higher, not lower, production quotas to keep oil at about $18 a barrel.
Even the upturn in oil demand in the US this year is questionable, Mr. Randol says, since a big boost earlier this year could be at least partly attributed to filling of inventories rather than to final demand.
Demand is the Holy Grail for oil producers. If it rises sufficiently, excess oil will be sopped up and prices will strengthen. World oil demand plunged deeply between 1979 and 1985, the IMF says, falling about 20 percent in that period. But the decline stopped and consumption has grown by a modest 2 percent over the past two years.
But the IMF says that even this modest increase in demand could be in jeopardy because of new oil finds. Recent ones were in North Yemen and Brazil, where a big discovery near the mouth of the Amazon was announced by President Jos'e Sarney this week.