OIL ministers from the Organization of Petroleum Exporting Countries meet in Vienna beginning tomorrow, aiming to agree on production cutbacks to firm up crude oil prices.
The trouble is, OPEC members have a history of violating such agreements. The organization's credibility was not helped when Ecuador permanently parted company with the other 12 members last year. There are signs of the same old intransigence that pole-axed previous agreements.
So far, though, oil traders have shown some confidence in the credibility-starved exporters, bidding up prices to around $17.65 a barrel in advance of the meeting. OPEC's target price is $21, but oversupply drove the market price under $17 late last year.
OPEC will be considering a plan hand-carried to members' capitals by Alirio Parra, Venezuela's energy minister and OPEC's president. Mr. Parra says OPEC members have agreed to cut the cartel's production quota by 1 million barrels per day, or 4 percent, from its first-quarter ceiling of 24.6 million b.p.d.
That is the minimum cut that the market expects from OPEC, notes Joseph Stanislaw, managing partner of Cambridge Energy Research Associates (CERA). If that happens, oil prices could rise by between $0.75 and $1 per barrel. Motorists would eventually pay another 2 or 3 cents for a gallon of gasoline.
If the cut is smaller, prices will fall, as they did after last November's meeting. Mr. Stanislaw notes that OPEC produced what looked like a workable agreement on paper, but traders dismissed it immediately, lacking confidence in the group's ability to carry it out. Sure enough, OPEC has been exceeding this quarter's ceiling by 500,000 b.p.d.
"The markets said in November, `We don't believe that OPEC matters,' " Stanislaw says. He advises oil companies to get used to low oil prices. "OPEC's not going to solve your problem." Kuwaiti production
Kuwaiti oil minister Ali al-Baghli announced this week that the war-ravaged emirate had restored production to 2 million b.p.d. Oil industry observers scoffed at the claim, which they dismissed as an attempt to justify seeking a larger share of the lowered output total than Kuwait actually deserves.
Indeed, a day earlier Nader Sultan, president of Kuwait Petroleum International, told a CERA conference here that the emirate is producing 1.7 million b.p.d. "We are on target" to produce 2 million b.p.d. in 1993," was Mr. Sultan's more modest claim.
Kuwait argues that it deserves to have production restored to the level prior to the invasion by Iraq. Ironically, Kuwait's refusal to abide by OPEC agreements, and the resulting drag on world oil prices, was a provocation for the Iraqi invasion.
The invasion backfired, though. Iraq now gets hardly any oil revenue, thanks to a UN-imposed embargo and the stubbornness of Iraqi president Saddam Hussein. Stanislaw notes that Iraq could put 500,000 b.p.d. back into the market on short notice - an eventuality that hangs over OPEC's market machinations like a sword of Damocles.
Saudi Arabia has announced that it favors the 1 million b.p.d. cutback. But in a speech to the CERA conference, oil minister Hisham Nazer turned his attention to factors that could potentially suppress demand. Saudi concerns
Mr. Nazer found much to be alarmed about. "Oil has been made the culprit" for uncertain environmental ills like global warming, he noted. Consuming countries tax oil highly, yet they often subsidize more-polluting coal. "Given the role of Saudi Arabia in the world of oil, it is not very helpful to see the industrialized countries implementing one policy after another to undermine international oil trade and consequently market stability."
Nazer also complained that oil exporters had revenues of only $70 billion in 1991 for 11.6 million b.p.d. sold to Europe, which then levied $222 billion in taxes on that volume of oil products.
"Saudi Arabia is a major stabilizing force in the oil market. We are investing billions of dollars to increase our production capacity to assure the world of adequate supplies in the years ahead," he said. Nazer directed a hint to the Clinton administration, which has been talking of an energy tax. "If demand is deliberately suppressed," he said, "then it would not be surprising if oil producers reassess the compatibility of their policies with the evolving policies and trends on the demand side."