OPEC Conference Breaks Up Without Quota Agreement
OPEC’s attempt to come up with a plan for ending the world oil slump again broke up in failure on Monday, and analysts said they expected prices to fall slightly.
Despite six days of discussions on this balmy Adriatic island, the cartel leaders headed home with no firm agreements on the key issue of how to lower production enough to prop up prices. Oil ministers, who have met without success on three occasions in four months, said they would meet again July 28.
“Really, OPEC has run amok,” said Scott Jones, an energy analyst at the private consulting firm Chase Econometrics in Bala Cynwyd, Pa. “Production is out of control.”
Analysts Predict Falling Prices
Jones predicted that crude oil prices would slip $1 to $2 a barrel, with retail gasoline prices in the United States dropping as much as a nickel a gallon by August.
Bryan Jacoboski, an oil analyst who was observing the talks for the Paine Webber investment firm, also said he expected oil prices to fall as a result of OPEC’s stalemate, “but probably not a lot.”
Although a majority of the members of the Organization of Petroleum Exporting Countries backed a plan for limiting the cartel’s oil production to 17.9 million barrels a day in the October-December period, the proposal was not adopted. The goal would be to push prices up to a range of $17 to $19 a barrel.
A hard-line minority of Libya, Iran, Algeria and Gabon refused to accept the figures. They wanted more drastic cuts in production in an attempt to restore prices to the $28-a-barrel level of last fall.
Oil prices initially dropped sharply and then leveled off on futures markets after the OPEC meeting ended. West Texas Intermediate crude, the most widely traded U.S. oil, fell 62 cents on Monday to close at $12.78 a barrel in contracts for August delivery on the New York Mercantile Exchange. West Texas Intermediate traded for as much as $31.70 a barrel as recently as November.
World oil prices currently are in a range of $11 to $14 a barrel, depressed by the oil glut and OPEC’s inability to agree on a strategy for ending it.
“I think we’re going to have low oil prices for at least five years,” said Philip Verleger Jr., an oil analyst for the consulting firm Charles River Associates of Boston.
Verleger said that until OPEC members stop cheating on production and until OPEC enlists support from non-member oil producers and consumer nations, the market will remain awash with more oil than it needs.
“They’re probably years away from a solution,” he said.
Lost Control of Market
Paul Mlotok, an oil analyst at the New York investment firm Salomon Bros., said: “OPEC is not capable of taking control of world oil markets. To do so means restricting production, and at the present time it is not willing to do so.”
Asked what his country would do to put upward pressure on prices, Iranian Oil Minister Gholamreza Aghazadeh told reporters: “First of all, we pray.”
Ali al Khalifa al Sabah, the oil minister of Kuwait, said member countries had pledged informally to try to hold down production until the July 28 meeting.
He said Kuwait would restrain its output “for at least the first two weeks of July” but would then act in its own interests if it saw other OPEC members pumping freely.
