OPEC’s Power to Control Oil Prices in Doubt

Most of the OPEC oil ministers left here determined to put the best possible face on their year-end meeting last week. Yet they accomplished little.

The Organization of Petroleum Exporting Countries is still fragmented, according to oil specialists here, and it is apparent that market forces, not OPEC quotas, will determine the price of oil for Western consumers.

The three-day meeting, which broke up Saturday, saw some agreement and some disagreement. Essentially, it underlined again the fact that OPEC is no longer able to set oil prices at the level its 13 members choose. Clearly, the price will be set in the hurly-burly of the international marketplace.

The ministers did agree to establish a monitoring committee to oversee member countries’ production--an effort to ensure that they do not exceed quotas assigned in the hope of stabilizing prices by controlling output. But they were not able to agree unanimously on a new scale of price differentials for their varying grades of crude oil.

Discussing the meeting in general terms after it ended, Kuwait’s oil minister, Sheik Ali al Khalifa al Sabah, said the agreement to monitor production “is one of the most important decisions in OPEC history.”

“We made a great deal of progress,” he said, “but obviously a lot remains to be done. I would have been happy if we were able to solve the problem of price differentials. But there was just not enough time.”

He said that if the meeting had lasted a couple of more days, disagreements over differentials might have been resolved, but he said there was pressure on the ministers to return home in time for New Year’s.

Eleven of the ministers agreed on a system of differentials that reduces OPEC prices for extra-light crude to levels about $1.25 a barrel above the benchmark price of $29 a barrel--the price for Arabian Light crude.

Prices for heavy crude oil were raised to levels beginning about $2.50 below the $29 mark. But two of OPEC’s leading producers, Nigeria and Algeria, did not agree to the new system.

The change was aimed at bringing OPEC prices more in line with prices dictated by market forces. In recent months, OPEC’s extra-light oil has been overvalued and its heavy oil undervalued.

Nigeria has been pressing for a much higher price for heavy crudes to make its extra-light oil more attractive in comparison. It has been selling at prices up to $2 a barrel below the OPEC price for extra-light crude.

A country of more than 88 million people, Nigeria needs growing oil revenue to meet its huge national budget, and it is thought to be one of the OPEC nations capable of breaking any price and production levels that might be satisfactory to the Persian Gulf states, which have huge oil reserves and relatively small populations.

Tam David-West, the Nigerian oil minister, appeared at a news conference in what appeared to be an effort to show that his government had not been unreasonable at the meeting and that all is still well within the cartel. Nigeria, he said, is “not separating from OPEC.”

He said his government believes that the accord on price differentials “was not bold enough,” and indicated that Nigeria is prepared to go its own way if necessary.

When asked if his country would adjust its prices to meet the reduced price of British North Sea oil, David-West said: “Ask my customers. Britain does what is in its own interest and Nigeria will do what is in our interest.”

Thus, it appeared to many observers that countries such as Nigeria, while paying lip service to OPEC’s system of fixed prices, will nonetheless undercut those prices if necessary.

Khalifa, the Kuwaiti oil minister, said he believes that the production monitoring system will work. Yet oil industry experts were skeptical that the auditors will be able to have full access to the production data of all the members, particularly some of the more nationalistic and secretive nations like Iran and Iraq, which are engaged in a bitter, expensive war financed by their sales of oil abroad.