From OPEC’s Spigot Comes an Uneven Stream of News : Markets’ Attempts to Create Order Out of Chaotic Talks Are Instantly Reflected in Oil Prices
The oil industry--all those wells, drilling rigs, tankers, refineries, petrochemical plants and gas stations--is one of the largest and richest in the world. And it is, to a large degree, fueled by OPEC.
But vital news of the meetings of the 13-nation Organization of Petroleum Exporting Countries, which attempts to set world oil pricing policy, is generated in chaotic fashion. Yet, as was proved again Tuesday, that chaos is instantly translated into volatile oil prices as traders around the world bet on whether the 13 oil ministers will reach agreement on production levels that will push oil prices up or down.
“You would think that there would be some orderly arrangement to brief the media,” said one London-based oil analyst here. “But, no, the news comes out haphazardly. It’s a kind of bizarre bazaar.”
For the 13 delegates rarely meet in a joint session, and considered announcements at the end of such sessions are rare. Instead, they hold dozens of private meetings in hotel rooms and over dinner tables and are buttonholed by scores of journalists covering the meetings.
Waiting for crumbs of news with the journalists are many oil industry analysts and traders, all trying to get a reading on future prices.
Reports of progress in the OPEC talks, or the lack of it, are immediately transmitted to world oil markets over telephone and telex lines and rapidly transformed into oil prices.
“There are a lot of oil traders taking high risks on the outcome of these meetings,” said one industry specialist.
But the key reports on which oil prices are based are gathered in uncertain, catch-as-catch-can fashion.
With no regular briefings, reporters are reduced to shouting questions to ministers, surrounded by aides and bodyguards, across hotel lobbies and through closing elevator doors.
Occasionally, a minister will hold still to give a few coherent answers--but often the language shifts from English to Arabic, French to Farsi, in a confused jumble of half-heard replies. Minutes later, the reporters compare notes and tapes, trying to figure out what the answers mean.
Tuesday’s events were a case in point.
The morning began in a negative mood, a hangover from the evening before when the Iraqis and Iranians seemed glum abut the possibility of an accord on their share of the organization’s production quota.
Such an agreement is the key to the success of the current meeting. Iran has refused to agree to quota shares that would allow Iraq to produce as much crude oil as Iran does, something the Iraqis are demanding.
Both countries are pumping oil at rates exceeding their existing quotas to gain as much income as possible to offset eight years of devastating warfare with one another. Their overproduction has encouraged other OPEC members to do the same, to maintain market share. With a worldwide oversupply, oil prices have declined.
Until some compromise is reached, OPEC cannot set stable price targets for 1989.
So Tuesday, with what was seen as negative news, the oil market opened lower in London.
But at mid-morning, Iranian oil minister Gholamreza Aghazadeh, collared by reporters as he arrived in the Marriott Hotel to see Nigerian oil minister and OPEC President Rilwanu Lukman, said he thought an agreement could be reached.
On this slim morsel, oil prices quickly jumped in London.
Prices remained high during the afternoon, buoyed by a remark tossed off by Iraqi Oil Minister Issam Abdul-Rahim Chalabi from an elevator at the Marriott: “We are working on a agreement.”
Actually, the 13 ministers had been “working on an agreement” for six days, so the statement added nothing new--but oil markets nevertheless viewed it as strongly positive.
However, by evening, as Iran’s Aghazadeh left an elevator after talks in the Marriott, he told reporters that Iran would stand firm in opposing parity for Iraq in its oil production quotas.
His first remarks in English and Farsi were considered negative; journalists from specialized news agencies rushed to the phones.
Their reports flashed around the world--halting the rise oil in prices and sending them downward.
A few minutes later, in his impromptu question-and-answer session, Aghazadeh seemed to take a more positive tone, indicating that room might exist for a compromise after all.
But by then oil prices had already reacted, giving back some of the earlier gains, and traders, like journalists, were confused about a prospects for a successful outcome.
As one New York oil analyst said, “I called my office with the news two minutes later and they told me they already had the bulletin and were too busy trading to talk.”
While it may seem a strange way to do business, OPEC veterans say the chaos is actually a reflection of the lively negotiating process.
“This is not like a European Community meeting or a superpower summit, where things are worked out in advance and even the communique prepared,” said one observer who has attended many meetings. “This is a real negotiation.”
And Paul D. Mlotok, a vice president of Salomon Bros. who attends OPEC meetings regularly, explained:
“Business is being actively done here. There is an ebb and flow to the talks. Certainly, the ministers would prefer to do all this in private and simply make a statement at the end of the meeting. They really don’t like having to answer questions from the press and watch the market fluctuate on their replies.
“They are not really being contrary. But they don’t have a script to follow. They are trying to find an agreement in the middle of a world spotlight.”
And another weary veteran of the OPEC news gathering process in Vienna summed up:
“In a way, it is demeaning for all of us--oil ministers, journalists, analysts--to operate in this crazy fashion, but that’s how OPEC works.”
