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OPEC Approves Minor Price Cuts : Cartel OKs 2% Reductions on Medium, Heavy Crudes

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Times Staff Writer

The Organization of Petroleum Exporting Countries ended a crucial four-day meeting here Thursday with a marginal cut in its pricing structure, its unity barely intact and its ability to influence the world oil market in further decline.

A final communique confirmed that 10 of the 13 OPEC member nations had decided to make adjustments of less than 2% in the price differentials offered for medium and heavy Saudi Arabian crudes, while leaving the basic benchmark price for Saudi light crude unchanged at $28.65 per barrel. Medium crude will be reduced 20 cents per barrel to $27.20 and heavy crude will go down 50 cents to $26 per barrel.

The three dissidents on the price decision--Iran, Algeria and Libya--had also voted against OPEC production-quota cuts in 1984 and earlier price cuts at the beginning of 1985. But, had any larger cuts or spread in price differentials been attempted at the current meeting, the split in the organization would have widened even further.

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Saudi Arabian Oil Minister Ahmed Zaki Yamani was one of the main proponents of a price cut.

The practical effects of the split decision will probably be negligible, since none of the three dissident states market either medium or heavy crude.

Yet, with the spot market as much as $3 under OPEC’s official price levels for the last six months or longer, and with OPEC itself pumping barely 14 million barrels per day of its own production quota of 16 million barrels, this minor price cut appears all but irrelevant.

Situation Different

Indonesian Oil Minister Subroto, president of OPEC, told a news conference that unanimity between “member states of diverse national interests” is not always possible and that the aim of the organization is not unanimity but the achievement of what is possible.

As to the effect of the marginal reduction on markets and the outlook for the cartel’s share of the markets, he said that OPEC members are looking for an upturn in demand in the last quarter of the year.

“The situation is rather different from last year in that stocks are very low right now, and we expect the market to pick up,” he said.

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“We recognize that the differential is a dynamic thing, and this is an effort to correct discrepancies in the structure. We will continue to adjust to the realities of the market.”

Venezuelan Energy Minister Arturo Hernandez Grisanti asserted after the meeting:

“We will continue to try to achieve orderly and stable markets that are beneficial to both consumer and producer countries, and we hope that non-OPEC producer as well as consumer countries will recognize that it is in their own interests not to continue to try to pressure OPEC for lower prices.

“If prices were to fall sharply in the future, this could set the stage for a future oil crisis and a future violent increase in prices,” he said.

The oil ministers all renewed past pledges to submit to regular independent auditing of their books on production, on exports and on prices.

Overproducing on OPEC quotas and underselling the agreed OPEC price structure in the face of falling market conditions remain OPEC’s central problems in trying to regain its market influence.

In the words of Nigerian Oil Minister Tam Sokari David-West: “If we have strict discipline, we will solve most of our problems.”

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The oil ministers will meet again in Vienna in October.

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