OPEC Approves New Production, Price Standards : Only Iraq Refuses to Sign Agreement; Cartel Seeks to Cut Crude Oil Output 7%
Twelve of the 13 members of the Organization of Petroleum Exporting Countries agreed today to cut oil production about 7% and fix crude oil prices at an average $18 a barrel starting Jan. 1.
As expected, Iraq refused to sign the accord, which was reached at 5 a.m. after the OPEC ministers spent all night trying to resolve a dispute between military foes Iran and Iraq and attaching price tags to more than 100 grades of crude oil.
The action, OPEC’s second agreement this year to cut oil output and shore up collapsing prices, could nudge crude prices to the $18-per-barrel range and boost gasoline prices at the pump about a dime.
Anticipation of an OPEC agreement had already driven up prices in the futures markets to about $16 a barrel on Friday from about $15 before the meeting began.
Return to Earlier OPEC Strategy
Analysts remained skeptical of the complex system of fixed, “take-it-or-leave-it” prices, a return to OPEC’s earlier strategy of setting official prices rather than letting market forces determine the price. But some said the cartel’s scheduled cut in production might have enough effect on the supply-demand imbalance in oil markets to make $18 an honest price instead of just a fixed one.
One oil company executive at the meetings said OPEC might have to cut production further this spring, when seasonal oil demand drops, to protect the so-called fixed $18 price as OPEC oil competes with non-OPEC oil. There were also predictions that the fixed price system would tempt financially hard-pressed OPEC members to cheat by undercutting the “official” price in order to sell more oil.
The agreement was reached on the 10th day of a meeting that OPEC ministers hoped would take just a few days and would signal renewed unity in the cartel. But a dispute between Iraq and Iran, two founding members of OPEC that have been at war since 1980, caused the meeting to drag on and almost doomed the talks.
Iran finally gave in on its demand that Iraq, currently exempted from production ceilings, be forced to observe the new quotas. And Iran apparently abandoned its insistence that Iraq be censored in some way for refusing to go along.
‘Complete Capitulation by Iran’
OPEC President Rilwanu Lukman, the oil minister of Nigeria, said there is a provision in the accord for OPEC ministers to reconvene if Iraq is found to be exceeding the quota assigned to it, but it wasn’t clear what the cartel could do about it. Lukman said there is no deadline by which Iraq would have to conform.
“It looks like a complete capitulation by Iran,” said oil analyst Bryan Jacoboski of Paine Webber.
Saturday’s agreement cuts OPEC production to 15.8 million barrels per day from the current quota of about 17 million for the next six months. However, the 15.8-million level assumes a lower production level for Iraq than the Iraqis are expected to produce under a pipeline expansion due to take effect early next year.
Jacoboski said the actual cut in production will be perhaps 800,000 barrels per day. But even at that more modest reduction, he said, “They’ll have no trouble reaching $18 for the first quarter.”
