Quota Woes Continue as Critical OPEC Issue : Cartel Panels Convene in Vienna to Thrash Out Key Troubles--Overproduction and Low Prices

The Organization of Petroleum Exporting Countries began a crucial meeting Thursday to pull itself together, reduce output and boost the price of oil.

The OPEC committees on price and strategy met in closed session late Thursday at the group’s headquarters to seek production quotas that its 13-member states will respect.

The committees met for only an hour, and sources said the members would hold bilateral conferences today and another full meeting on Saturday.

The full session of OPEC oil ministers will convene Monday, hoping that the committees will have sorted out the intractable problems facing the global cartel.

Most oil industry observers Thursday gave the meeting only a 50-50 chance of success.

A failure to agree on quotas for all the members could lead to sharply lower oil prices, which run about $10 a barrel for benchmark Dubai crude and somewhat higher for North Sea and U.S. oil.

In New York, oil futures prices sagged in heavy trading, pressured by signs of continuing discord within OPEC. The December contract for West Texas Intermediate, the benchmark grade of U.S. crude oil, tumbled 38 cents to settle at $13.29 per 42-gallon barrel, after falling 23 cents on Wednesday. Other contract months also declined sharply with next October’s contract down 87 cents at $12.70.

On the eve of the conference, OPEC President Rilwanu Lukman of Nigeria warned that all 13 member nations must agree on quotas, and he admitted that some members were producing much more oil than their allocated share.

The main obstacle to an OPEC agreement is the running feud between Iran and Iraq, which reached a cease-fire only this year after eight years of war. Both nations are producing as much oil as they can to earn income to make up for their war losses.

Iraq insists on the right to produce as much as Iran, a demand that has been rejected by Iran and some other members. In response, Iraq has simply raised its own production to capacity.

Before the meeting began Thursday, Iraqi Oil Minister Issam Abdul Rahim said, “It’s very clear our position hasn’t changed.”

Other countries, such as the United Arab Emirates, have boosted their production, too.

As a result, the crude price is $4 or more per barrel below OPEC’s $18 target figure for the past two years. OPEC members thus must now produce much more oil to obtain the same amount of revenue for their ailing treasuries.

By the end of last month, Saudi Arabia, OPEC’s largest producer, reportedly increased its production to 7 million barrels a day, a leap up from its quota of 4.3 million, as an object lesson to other overproducers that unlimited pumping could drag the price down to $5 a barrel.

The current self-imposed quota for the OPEC producers is just over 15 million barrels a day, but industry sources say the members are actually selling 21.7 million barrels.

Earlier this week, Indonesian oil minister Ginanjar Kartasasmita flew to Tehran and Baghdad to try to get the Iranians and Iraqis to agree on quotas acceptable to both. He has given no public indication of the results of his talks.

However, OPEC Secretary-General Subroto of Indonesia called for unanimity and warned:

“If Iraq does not sign an agreement including all 13 members, then there will be no agreement. Everyone will go their own way and prices will collapse.”

So concerned about that possibility is Alaska, which earns 80% of its revenue from oil, that for the first time it has sent a delegation to observe the meeting.

Alaska’s chief petroleum economist, Chuck Logsdon, told United Press International that the meeting is very important “as far as the state’s concerned because we’re really looking at very low oil prices right now, and Alaska’s concerned about the oil price situation.”