OPEC Says Agreement Is Near on Price Cuts
OPEC’s president said today that the cartel is near agreement on a price-cutting plan, something the oil industry hopes will restore stability to volatile markets and heal divisions in the acrimonious group.
After morning and afternoon sessions totaling 4 1/2 hours, the ministers called a recess and said they would reconvene for a rare late-evening session.
Pressure on OPEC to take decisive action was heightened when an important ally, Egypt, withdrew from the meeting as an official observer this morning, saying it would go its own way. Egypt is not a member of the 13-nation Organization of Petroleum Exporting Countries.
The size of proposed price cuts was the main point of contention inside the closed-door meeting, according to Indonesian Oil Minister Subroto, OPEC’s president.
“We made progress in the sense that we narrowed” the difference in views among the ministers, he said during a break in the talks. He said there had been no agreement on specific price cuts.
At the outset of the second day of negotiations, OPEC’s campaign to win cooperation from oil exporters outside its ranks was dealt a severe blow.
Egypt’s oil minister, Abdul-Hadi Kandil, who was invited to observe the proceedings, walked out and said his country did not plan to continue cooperating with OPEC. When asked, he did not rule out a cut in his country’s oil price.
Because OPEC was seeking to raise the price of its least expensive oils in addition to cutting prices for the premium crudes, the overall effect of any changes was expected to be small, conference participants have said.
Benchmark Price
Each $1 cut in the price of a barrel of oil is equivalent to a reduction of approximately 2 1/2 cents in the price of a gallon of refined petroleum products, such as gasoline, when the entire savings is passed on to consumers.
Arabian light oil, at $29 a barrel, is OPEC’s benchmark price. Prices for the cartel’s other grades of oil are arranged above or below Arabian light, depending on the oil’s quality.
OPEC prices range from $30.50 a barrel for the top-quality extra-light crude oil produced by Algeria to $26.50 for the lowest-quality crudes produced by Saudi Arabia and some others.
Subroto had said Monday that Nigeria wanted to narrow the $4 spread to $2, while Saudi Arabia favored $2.90. Even if they could agree what the spread should be, the ministers still faced the task of setting new prices for each of the dozens of different grades of OPEC oil.
The cartel is under pressure to set new prices because some member countries cannot find customers for their allowed share of oil production at current prices. Nigeria upset the whole system in October when it unilaterally cut its prices by up to $2 a barrel in reaction to smaller cuts by non-member competitors Britian and Norway.
The pricing plans under discussion Tuesday called for Nigeria to move its price back up by at least 65 cents a barrel, according to conference sources, who spoke on condition they not be identified.
Regains Some Ground
The prospect that Nigeria would roll back some of its October price cut and that OPEC was approaching a decision on prices, helped oil markets recover from a turbulent session on Monday, with little change in prices Tuesday on the spot or non-contract market.
Arabian light crude for February delivery continued to be quoted at $27.60 a barrel on the spot market, according to Telerate Energy Service, a private market-information business. West Texas intermediate crude, the major U.S. grade of oil, rose to $25.40 a barrel for March delivery in spot markets, after dropping below $25 on Monday, a five-year low.
The cartel, realizing that oil producers outside its ranks had taken the lead in determining world oil prices, launched a campaign two years ago to win the informal support of Egypt, Mexico and other important non-OPEC producers.
Last October, OPEC invited Egypt to attend its emergency meeting as an official observer.
But today, Kandil announced that he has grown tired of OPEC’s lengthy and often fruitless negotiations. He attended the opening session Monday, but left the meeting this morning and did not return.
On Monday, Mexico’s oil minister told the OPEC ministers that his country also was growing weary of the cartel’s lack of discipline and its internal bickering.
But the oil ministers from Mexico, Malaysia and Brunei continued to attend today’s session.
