OPEC Hopes to Snap Lid on Oil Production : Analysts See Little Chance for Success

OPEC oil ministers begin a series of crucial meetings this week designed to impose greater discipline on the cartel and end the persistent weakness in world crude prices.

However, industry analysts held out little expectation that OPEC would reach agreement, a sentiment echoed by U.S. oil company executives gathered Monday at the annual meeting of the American Petroleum Institute in New York.

“It might take more than one or two meetings to achieve” higher prices by limiting production, said Richard M. Morrow, chairman of Amoco Corp.

The 13-member Organization of Petroleum Exporting Countries is under intense pressure to come up with a new production agreement to regain some control of the chaotic market.

“The alternative is for the conference to collapse in a heap,” said Paul McDonald, an oil consultant in London.

Market Already Glutted

Two of the cartel’s committees plan joint discussions starting Thursday in Vienna. All 13 ministers are scheduled to meet next Monday for their regular winter meeting.

Saudi Arabia and other OPEC members have turned up their production levels in recent months as they compete for market position before the meetings.

The increased output has added more crude to an already glutted market, pushing prices $4 or more below OPEC’s benchmark price of $18 for each 42-gallon barrel.

Each $1 drop in the price of crude oil theoretically means a fall of 2.5 cents a gallon in retail gasoline prices. However, U.S. oil companies have not passed on to consumers the current price decline partly because of the tight supplies of gasoline coupled with high demand.

If the OPEC ministers succeeded in putting together a new production package, oil prices should rise some in the coming months, analysts said.

Failure, they said, could send prices into a nose dive.

“If they come up with a convincing system, we could see prices go up a couple of dollars,” said David Gray, an oil analyst at the London investment firm of James Capel & Co. If not, “prices could be below $10 quite quickly.”

Charles J. DiBona, president of the American Petroleum Institute, the main trade group for the U.S. oil business, said, “I am optimistic that they will reach an agreement; the question is how soon.”

Hope to Stop Cheating

The International Energy Agency estimated in its Monthly Oil Market Report that OPEC production soared to almost 21.1 million barrels a day in October, the highest monthly output for more than five years.

The cartel’s current production quotas, stemming from a December, 1986, arrangement, are intended to limit total output to about 15 million barrels a day. That excludes Iraq, which ignored its quota.

Several OPEC members have recommended that the cartel boost its output ceiling to 17.4 million barrels, which would still require a sharp overall cutback by the cartel.

The Vienna meeting’s goals are to try to come up with new quotas, bring Iraq back into the system and stop the cheating by the cartel’s members.

Analysts predicted new production guidelines could set a total output ceiling in the range of 19 million to 19.5 million barrels a day, which would boost each member’s allotment by about 10%.

But analysts say that level still would exceed demand.