OPEC leaders began arriving at their Vienna headquarters under extraordinary security Wednesday for a series of talks that industry analysts say could lead to a new decline in world oil prices.
As preparations got under way for Friday's opening of the oil ministers' summer conference, a report by the government-supported Kuwait News Agency said a majority of the 13 ministers had reached a tentative agreement to lower the price of OPEC's top-grade crudes by $1 to $1.50 a barrel.
The report, citing unidentified Persian Gulf oil sources, said that, in addition to lowering the price of Arabian Light crude oil from $28 a barrel, the Organization of Petroleum Exporting Countries also should cut its production ceiling by as much as 1 million barrels a day.
The current production ceiling is 16 million barrels a day, although actual output in May and June was estimated at about 14.5 million barrels, the lowest level in 20 years.
Later, however, the official Saudi Press Agency said OPEC's official news agency distributed a statement in Vienna from a senior OPEC official, who was not identified, saying the Kuwaiti report "is devoid of truth; a mere speculation."
Several OPEC ministers have been engaged in the usual last-minute diplomatic efforts to avert a major confrontation at the Vienna session. Despite the Kuwaiti report of a tentative deal, however, Iran and Algeria were expected to strenuously oppose any price cuts.
Belkacem Nabi, the Algerian oil minister, said last week that a fresh cut in prices would not solve the group's problem of excess supplies. He said OPEC needed to persuade non-OPEC producers to limit their production.
Any OPEC price cut would be only the third in the group's 25-year history. The first was in March, 1983, from $34 a barrel to $29, and the price was dropped an additional $1 last January.
Each reduction of $1 a barrel in the price of oil, if adopted by all producers and passed on entirely to consumers, would be the equivalent of a cut of about 2 1/2 cents a gallon in the retail price of gasoline and other refined petroleum products.
As the OPEC ministers began arriving Wednesday, police were mounting the biggest security operation ever for an OPEC meeting, said police sources, who spoke on the condition that they not be identified. They said the extra security was ordered in reaction to the recent rash of terrorist attacks in Europe and the Middle East.
The two luxury hotels where the ministers were staying, and where some of the talks will be held, were ringed by anti-terrorist squads. Several detachments of federal riot police were also on alert, the sources said.
Difficult Meeting Expected
Industry analysts have said the meeting is likely to be one of OPEC's most difficult. The cartel, weakened by slack demand for its oil and increased production by Britain and other nations outside the OPEC sphere, has been unable to find a formula for halting the slide in prices.
Carol Ferguson, chief oil analyst at the investment firm of Wood, Mackenzie & Co. in Edinburgh, Scotland, has said that she sees a 20% chance that oil prices will drop below $20 a barrel if OPEC fails in Vienna to agree on credible restraints to production.
Oil industry analysts at the New York securities firm of Merrill Lynch, Pierce, Fenner & Smith said in a recent commentary that "we doubt that OPEC can accomplish anything substantive to overcome its current difficulties."
Even some of the OPEC leaders are talking about the possibility of a sharp drop in prices. Ahmed Zaki Yamani, the Saudi Arabian oil minister, said last month that, if the other OPEC nations continued cheating on the group's rules, prices could fall to $20 a barrel or lower.
On Monday, Venezuela's oil minister, Arturo Hernandez Grisanti, said price cutting by non-OPEC oil exporters raised the threat of "anarchy" in the world oil market.
The Saudis are at the center of OPEC's latest crisis. In early June, King Fahd sent a message to the other OPEC governments saying that Saudi Arabia would no longer be willing to bear the brunt of production restraint and price discipline if the others continued to flout OPEC rules.
Fahd put the others on notice that, if they did not fall into line soon, Saudi Arabia would unilaterally boost its production, which recently dropped to its lowest level in 20 years. A surge in Saudi output, Yamani said, would trigger a quick and sharp decline in prices.
The pressure on OPEC to adopt at least a small cut in prices has been growing in recent weeks. The Persian Gulf nation of Oman, which is not an OPEC member, was reported Wednesday to have added to the downward pressure by reducing its oil price by 25 cents to $25.90 a barrel.
Mexico, whose oil officials are in Vienna even though that nation is not an OPEC member, cut the price of its lower-grade crude by $1.50 a barrel to $24 in mid-June.
Recent Price Cuts
In the spot, or non-contract, market, Arabian Light for July delivery was quoted Wednesday at $27.15 a barrel, 85 cents below OPEC's official price, and Arabian Heavy was quoted at $25 a barrel, or $1.50 below the OPEC price, according to Telerate Energy Service, a private market-information firm.
Marathon Petroleum, a unit of U.S. Steel, reduced the price that it would pay for West Texas Intermediate crude oil, the benchmark domestic crude, by 25 cents to $27.25. Marathon also cut the price of 10 other domestic grades by 25 cents. Last Friday, Conoco cut the price it would pay for West Texas Intermediate by 30 cents to $26.75.