OPEC Reaches Temporary Accord Aimed at Increasing Oil Prices by as Much as 20%

OPEC oil ministers early today agreed to renew curbs on oil output until the end of the year in an effort to drive prices higher, according to an official communique.

A conference of the Organization of Petroleum Exporting Countries took 17 days to reach the agreement, with several of the 13 members lodging competing demands to be allowed to sell more oil.

OPEC President Rilwanu Lukman of Nigeria told reporters that the aim of the new accord was to drive up oil prices to between $17 and $18 by December, about 20% above present levels.

A previous two-month accord, which expires on October 31, boosted prices to about $14 a barrel from lows below $9 in July. Prices plummeted earlier this year from levels around $30.

The crash was provoked by an OPEC decision last December to fight an increasing number of non-OPEC producers for a “fair share” of the market. That decision aggravated a market that was already heavy with surplus and prompted the price collapse.

The communique said OPEC members agreed to raise their present overall production limit by 200,000 barrels per day to about 17 million barrels per day.

Will Need Another Agreement

Oil analysts and traders following the conference said this should be enough to boost prices closer to $20 a barrel by December, but they noted that the ministers would then have to start from square one to forge a new accord. The communique said “minor adjustments” were made in an existing structure of production controls to accommodate such demands.

Ministers, holding the longest meeting in OPEC’s 26-year history, meet again Dec. 11 in a renewed effort to forge permanent production quotas for each state.

Today’s communique emphasized that the new pact “should in no way be construed as a permanent quota distribution among members.”

The conference had been deadlocked by a demand from Kuwait to raise by 90,000 its quota of 900,000 barrels per day to compensate for past “sacrifices.” In the end, Kuwait settled for a rise of 60,000 barrels per day for November and December. Its two powerful Persian Gulf allies, Saudi Arabia and the United Arab Emirates, were the only states to receive no increase.

OPEC was able to dictate its own terms in the 1970s, supplying non-Communist industrial countries with almost two-thirds of their oil and driving up prices to more than $40 a barrel.

New Supplies From Non-Members

But new supplies from emerging non-OPEC producers, such as Britain, Mexico and Norway, and energy conservation in Western industrial nations pushed down OPEC’s market share to about one-third.

OPEC efforts over the past two years to limit the group’s production to slash market supplies and boost prices have failed due to cheating on the self-imposed production quotas.

With OPEC revenue crashing by about 50% this year to some $60 billion to $85 billion, each member has fought bitterly for the largest possible quota.

The Iranian-inspired interim agreement forged in August, OPEC’s first unanimous accord in over a year, was made possible by excluding Iraq from the quota distributions.

This resolved a fierce feud over quotas between Iran and Iraq, both desperate for cash to fund their 6-year-old Persian Gulf war. Iraq, which has been producing about 2 million barrels per day, was excluded again from quotas assigned at this meeting.

The new total for the 12 states receiving quotas came to just over 15 million barrels per day. With Iraq’s production, this will keep the overall ceiling around 17 million.

Saudi Arabia, OPEC’s largest producer and most powerful member, has emphasized that this is the final extension to the interim pact and that the next meeting must set fair and permanent quotas for each member.