Oil Prices Rise to 10-Month Highs in Wake of Pact : But They Recede as Traders Grow Skeptical That OPEC Agreement Will Hold Up

Oil prices jumped to 10-month highs on Monday in reaction to an OPEC agreement over the weekend to cut output, but skepticism over the pact and profit taking later forced prices to retreat somewhat from the day’s highs.

The Organization of Petroleum Exporting Countries voted late Saturday to cut production by 7.6% to about 15.8 million barrels a day--the lowest ceiling in the cartel’s 26-year history. The group also agreed to fix its prices at higher levels averaging $18 per barrel, effective Feb. 1.

Even at that price--should it be reached--crude oil would remain far cheaper than the $30 a barrel that it was fetching a year ago. But oil at that price would assist Third World debtors like Mexico, Nigeria and Egypt, which export petroleum, and would be good for banks with heavy exposure in energy loans.

Key Crudes Make Gains

Traders in oil futures reacted by sharply bidding up the price of some grades. In Europe, Britain’s North Sea crude for February delivery rose more than $1.50 a barrel to $18 before slipping back to close at $17.40. On the New York Mercantile Exchange, the February delivery price for West Texas Intermediate, an important market indicator, rose $1.01 a barrel to $17.22.

Unleaded gasoline rose just under 1.5 cents a gallon to 46.06 cents, and heating oil rose more than 2 cents a gallon to 47.25 cents.

Oil stocks, riding the wings of the higher oil prices, also posted modest gains. Among the gainers were Chevron, Royal Dutch, Atlantic Richfield and British Petroleum.

Analysts emphasized that the increases were based partly on speculation and could easily seesaw on the hearsay that often affects energy markets.

“The market is giving OPEC a vote of confidence,” said Peter Beutel, assistant director of energy futures at Elders Futures Inc., “but there is still an underlying sense of caution.”

Theoretically, OPEC’s strategy could reduce the estimated 300 million barrels of excess oil in the market by about 2 million barrels a day. Were that to occur, the surplus would disappear in less than six months, some analysts estimated. This then would give OPEC enormous influence over prices, which have tumbled 50% during the past year to the $14-$16 level. The 13-member cartel lost an estimated $50 billion in revenue because of the price plunge, which generated potent political and economic pressures on its members, especially those in the Middle East.

“It seems to me there’s a lot of resolve out there on the part of OPEC to live up to this agreement,” said Gordon Pye, an oil industry economist for Irving Trust Co. in New York. “Having looked down the mouth of the cannon for most of 1986, that fear will stay with them for quite a while.”

Unraveling of Pact Feared

Stephen Smith, oil analyst for Data Resources Inc. in Lexington, Mass., said: “My best guess is that OPEC has been given a preview of the world of $5 oil in 1986, and they were frightened to death.” He estimated that oil prices could rise to $18 to $19 a barrel within a few months, which could boost U.S. gasoline prices by 8 to 10 cents a gallon.

Others argued, however, that the oil cartel’s chronic internal feuding could unravel the agreement and that non-OPEC producers might accelerate their output to gain a greater share of the world market. If so, prices could drop again. They noted the refusal of OPEC member Iraq to consent to the agreement and said other members such as Kuwait and the United Arab Emirates--purported offenders of past output restraints--might secretly produce and sell more oil.

“Not only do we have the disagreements within OPEC, but there’s a definite possibility of even less solidarity among non-OPEC producers,” said Trilby Lundberg, author of a Los Angeles newsletter that tracks domestic gasoline prices. “The conditions are not very pro-oil-price at this time.”

Lundberg said gasoline prices now average about 85 cents a gallon, compared to $1.20 at the same time last year, and added: “I can’t see prices reaching a dollar in the near future.”