8 OPEC Members Endorse 2.2% Reduction in Oil Output

A watered down plan to trim oil production and salvage this week’s unusual OPEC negotiations was endorsed by most of the cartel’s members early today but its most powerful oil producers withheld their approval.

An Algeria-sponsored plan calls for the Organization of Petroleum Exporting Countries to reduce oil exports by 300,000 barrels per day, or 2.2%, in May and June. A group of non-OPEC nations wants the cartel to match their 5% cut in exports.

The proposed compromise, a last ditch effort to prevent the collapse of a proposed alliance between OPEC and non-OPEC producers, was backed by eight of the cartel’s 13 members: Algeria, Indonesia, Nigeria, Venezuela, Ecuador, Libya, Iran and Gabon. Four moderates, which make up most of the Gulf Cooperation Council--Saudi Arabia, Kuwait, Qatar and the United Arab Emirates--were said by Iran’s Minister Gholamreza Aghazadeh to have “reserved an answer” on the proposal. The group is to meet again tonight.

OPEC’s 13th member is Iraq, which has refused for 16 months to abide by the cartel’s production quotas and remains outside the current plan as well.

The OPEC ministers are meeting in a special session triggered by the offer of six non-OPEC nations to cut their production in concert with the cartel. The nations, led by Mexico and Egypt, met with leading OPEC members earlier this week and proposed mutual cutbacks of 5% of each group’s crude oil exports.

Five percent of the non-OPEC group’s exports would be about 185,000 barrels per day, while the same percent of OPEC’s exports would be about 675,000 barrels. The compromise is less than half that, and it wasn’t known whether the Mexican-led group of independent producers would accept such a scaled down plan without slashing their own offer.

Saudi Arabia, OPEC’s leading producer and owner of the world’s largest oil reserves, opposes any cutbacks. It doesn’t believe that a production cut is necessary to firm up prices, and has made clear that it considers the offer of the non-OPEC group too meager considering its huge production increases of the past two years.

The Saudis and their supporters are proposing to put off any cut in oil production until OPEC’s regular June meeting. But a postponement threatens to squelch any serious prospect of OPEC joining forces with the other nations. Analysts said the incentive for a joint production cut will diminish even further between now and June.

Prices for oil futures reflected the uncertain outcome of the meeting. Contracts for June delivery of West Texas Intermediate, the benchmark U.S. crude, closed 1 cent higher at $17.99 per barrel, after having been down as much as 43 cents.

In a familiar type of OPEC dispute, there is sharp disagreement over the world oil supply-demand picture. That prompted midday meetings Friday among OPEC’s professional staff to seek an economic consensus.

“Everyone thought it was going to be simple, but the minute you start talking, all the old mine fields start popping up,” said an aide to one Persian Gulf minister.

The non-OPEC proposal, considered by some a modest step within the reach of even the contentious oil cartel, was threatened by an apparently shrinking imbalance between world supply and demand since the unprecedented OPEC/non-OPEC meeting was called in early April.

As had been predicted before the meetings, the outcome ultimately hinges on the Saudis’ resolve and whether their allies continue to support them. One wild card is the link between Saudi ally Kuwait and the Algerians, who engineered the safe release of hostages--including members of Kuwait’s royal family--from the hijacked Kuwaiti airliner earlier this month.

Kuwait’s oil minister, Sheik Ali al Khalifa al Sabah, and his Algerian counterpart, Belkacem Nabi, are thought to be on opposite sides of the moment’s OPEC issue. But they emerged from the meetings early today arm-in-arm, laughing and mugging for the television cameras.