OPEC Fails to Form Global Alliance to Cut Oil Output

An ambitious plan for a global alliance of oil producers stumbled early today over the inability of the Organization of Petroleum Exporting Countries to overcome its own intractable internal differences.

OPEC’s 13 oil ministers broke off their unusual meeting here and adjourned until June after failing to settle on a plan to cut oil production in concert with Mexico and five other non-OPEC nations.

The collapse of the talks is likely to drive oil prices down for now, perhaps by $1 a barrel, analysts said. That will not have much effect on the price of gasoline or other oil products, however, because prices are expected to edge back up as seasonal demand picks up this summer.

The failure to cut production was a victory for Saudi Arabia, the world’s richest oil nation, which opposes sharp increases in oil prices--fearing they would trigger new conservation and alternative energy measures in industrial nations.

The Saudis’ tight-lipped oil minister, Hisham Nazer, was ebullient on his way out of OPEC headquarters early today.

“This is a very happy ending,” he declared.

Despite Nazer’s pleasure at the outcome, other ministers--most of whom had supported a production cut, if only to demonstrate their appreciation of the offer from the non-OPEC group--strained to put the best possible face on the outcome of what the cartel’s own publicity apparatus had billed as a “momentous” series of meetings.

Oil Minister Gholamreza Aghazadeh of Iran--which, along with Venezuela, is a strong supporter of a cut in output to firm up prices--insisted after the final meeting that he viewed the result “positively.” But he then admitted that he had promised the other ministers not to criticize the results.

‘Needed More Time’

Rilwanu Lukman of Nigeria, president of the OPEC conference, said that the ministers “needed more time to interact with our non-OPEC friends” and that meetings with the group will continue before OPEC’s regular midyear meeting June 9.

“This opportunity is one we cannot take lightly,” Lukman said. “We regard their offer as a starting point. We don’t want to come up with a half-baked arrangement. It’s far more important that we arrive at an arrangement that can last.”

Non-OPEC nations Mexico, Egypt, Angola, China, Malaysia and Oman said they would each cut their exports by 5%--a total of about 183,000 barrels a day--if OPEC would match the reduction in percentage terms. But as the talks dragged on, OPEC’s proposed response was whittled down day by day until the Saudis, backed by Kuwait and the United Arab Emirates, prevailed.

There was no immediate response from the non-OPEC group, whose ministers left Vienna last Wednesday. But a Mexican oil official, asked over the weekend what the group would think if OPEC took no action, said:

“OPEC has its problems, we certainly know that. But a statement isn’t enough.”

Lukman, asked if the cartel is concerned that its failure to act on the non-OPEC proposal might doom any more cooperative efforts, said, “I don’t think there is any danger of that.”

Both sides need each other. OPEC’s share of world production has fallen to the point where it can’t control markets, and one reason is a sharp increase in production from such non-OPEC nations as Norway, Yemen, Colombia and others with new or expanding oil fields.

Overproduction a Problem

But the initiative to join forces came from the non-OPEC contingent because world overproduction has caused OPEC members in recent months to effectively abandon their own official average price of $18 a barrel in order to protect their market share. In the process, low-cost oil from the prolific Persian Gulf oil field undercut many non-OPEC producers.

Another stumbling block proved to be an improved oil price outlook compared to the bleak picture that existed when last week’s unprecedented joint meetings were called, over Saudi objections, in early April.

Late last week, Saudi King Fahd, citing evidence from an increasing number of oil economists, called attention to reports of higher-than-expected demand for oil and said there was no need for OPEC to cut production--the view that ultimately carried the day here.

Lukman indicated that one problem in the negotiations was how much the non-OPEC group was willing to cut compared to what it expected from OPEC. The Saudis have made clear that they consider the 5% cut offered by the independent producing nations to be meager, considering their huge production increases in the past two years.

However, Mexican officials have stressed that their offer was deliberately modest because it was viewed as one that, in one official’s words, “had a chance of flying.”

Despite the optimistic talk of continuing talks with the non-OPEC group, oil prices are expected to be higher during the June meeting than now--not normally a circumstance conducive to cutting production.