OPEC Ends Talks, Makes No Price Cuts : Cartel Schedules Another Meeting in 2 Weeks in Geneva

A crucial meeting of the Organization of Petroleum Exporting Countries ended in obvious failure Sunday with its 13 ministers refusing to cut the official OPEC price for oil but offering only vague promises to end the cheating that is helping to drive it down.

Taking the chance that their relative inaction would hurt the market in the next two weeks, the ministers decided to try again at a meeting in Geneva, beginning July 22.

It was clear that OPEC ministers were still too divided to come up with a united way of keeping the free market price of oil from dropping and the OPEC share of the world market from slipping away.

Statement of Good Intentions

After three days of long discussions, the ministers in Vienna came up with little more than a statement of good intentions about sticking to OPEC rules. Similar statements have been made at past OPEC meetings without ending the price discounting and overproducing that helps to make a mockery of the official OPEC oil price.

That price is $28 a barrel for Arab light oil and $26.50 a barrel for Arab heavy. But Mana Said Oteiba, the oil minister of the United Arab Emirates, told journalists that only 25% of OPEC’s oil production is now sold at the official prices.

The great bulk of the oil, he said, is sold at “discounts of all kinds.” On the free market, Arab light is selling for a little more than a dollar below the OPEC price, while Arab heavy is selling at $1.25 below.

Despite the difficulty that OPEC has had in the past about ending both price discounting and overproduction, some ministers professed optimism about doing so this time.

Tam Sokari David-West, the Nigerian oil minister, told journalists after the meeting broke up that the official price could hold “if we are all disciplined and sincere.”

“The Nigerians intend to be disciplined and sincere,” he said.

Yet Nigeria is regarded as one of the worst offenders within OPEC. A heavily populated, poor country that needs funds quickly for development, Nigeria has reportedly been producing more than the quota authorized by OPEC and, to meet competition from outside OPEC, selling the oil at a discount.

In fact, the Nigerian example reflects a basic conflict within the oil cartel between poor countries that need money in a hurry and rich, underpopulated countries such as the Arab nations of the Persian Gulf that can afford to hold on to their oil and wait for prices to go up later.

Yet that was not the only conflict at the heart of OPEC.

“Every one of us is guilty of one thing or another,” David-West told reporters. “There is no one country that is exempt.”

The meeting was called in Vienna, in fact, because Saudi Arabia had become irritated about the widespread cheating. Under OPEC agreements, Saudi Arabia, with more oil reserves than any other country in the world, acts as the swing producer. If world demand for OPEC oil falls below the organization’s self-imposed quota of 16 million barrels a day, Saudi Arabia is supposed to cut back accordingly, allowing the others to produce their full quotas. Saudi Arabia, now producing less than it has in many years, has balked at this, especially when it feels that other producers are cheating.

But OPEC, despite Saudi Arabia’s threat to flood the market with its own oil if the cheating did not stop, did very little in a concrete way to meet the Saudi complaints.

After the Vienna sessions ended, Dr. Subroto, the Indonesian minister of energy and the president of OPEC, told journalists crowded near him at the bottom of a staircase in the Intercontinental Hotel, site of the conference, that the OPEC ministers had decided that “direct and indirect discounting must be discontinued, and previous commitments involving discounts of any nature have to be phased out as soon as possible.”

He said that OPEC’s executive council, made up of the ministers from Indonesia, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela, would supervise “the immediate phasing out of malpractices.” But Subroto did not say how this would be done.

The questions from journalists reflected a good deal of skepticism about OPEC’s ability to police itself. Grinning broadly, Subroto replied by saying: “From the OPEC point of view, we have done and are doing our best.”

Discussed ‘Floating Quota’

During the final day of the meetings, ministers reportedly discussed the concept of a “floating quota” that would drop below 16 million barrels a day in summer months when the demand for fuel oil is low and would rise above 16 million in the winter when demand is high. But no agreement was reached on this.

Subroto simply said that OPEC has decided to keep to its quota of 16 million barrels a day. Asked if OPEC had agreed to relieve Saudi Arabia of its role as swing producer, Subroto, in his reply, ignored the question.

During the stay in Vienna, OPEC, in what amounted to a bureaucratic play on words, insisted that it was not really meeting officially at all but merely “consulting.”

OPEC originally was scheduled to hold a regular conference in Geneva on July 22. But because it was rapidly losing both its price and its customers, OPEC decided to advance the session and meet instead in Vienna this weekend.

According to OPEC’s charter, however, the ministers could not do this until they met in what is called “a consultative meeting” and set the new date. The ministers entered this “consultative meeting” last Friday but, because of their disagreements about what to do, never left it.

As a result, from a technical point of view, the OPEC ministers on Sunday were not adjourning their meeting for two weeks but simply deciding to meet in Geneva as previously scheduled. Their three days in Vienna, under this reasoning, did not amount to a conference at all.

The obvious question, then, was why they had bothered to meet this weekend at all. Asked about this, Subroto replied with a broad smile, “We like Vienna.”