Some in OPEC May Not Obey New Oil Quotas

OPEC reached an agreement setting a higher oil output ceiling Wednesday, but signs that some cartel members were unwilling to abide by their new quotas sent oil prices tumbling.

Venezuelan oil minister Celestino Armas, who announced the agreement, said all 13 members of the Organization of Petroleum Exporting Countries would sign it.

A Saudi delegate confirmed that the group had raised the cartel’s collective production limit to 19.5 million barrels daily, up 1 million from the current ceiling.

The agreement, which should run from July 1 to the end of the year, took into account rising world oil demand to grant slight increases in the individual quotas of the cartel members, delegates said.

Accord Ends Deadlock

But a delegate from one of the Gulf states said Kuwait, which had demanded a much larger quota than it received, would sign the accord with some reservation and not feel bound by it.

The U.S. benchmark grade, West Texas intermediate, lost 79 cents to close at $19.67 a barrel, while North Sea Brent for loading in July was down 65 cents at $17.35.

Wednesday’s agreement marked the end of a three-day deadlock resulting from Kuwait’s demand for a 30% increase in its quota. The United Arab Emirates also wished for a higher increase.

But a majority led by Saudi Arabia was insisting on a straight pro rata increase, based on each country’s prior quota.

Delegates said Kuwait’s Sheik Ali al Khalifa al Sabah did not appear to be backing down from his demand for a 30% rise. They said he and Mana Said Oteiba of the United Arab Emirates would probably voice reservations about the agreement, which market analysts would take as a signal that they will probably go on producing above their assigned quotas.

The cartel recently has been producing some 21 million barrels daily as member countries have exceeded their quotas.

The Paris-based International Energy Agency, the West’s energy watchdog, said it expected demand for OPEC oil to reach almost 21 million barrels a day in the second half of the year, enough to accommodate some OPEC quota “leakage,” provided that heavyweights like Saudi Arabia do not join in.

According to conference sources, Kuwait’s Sheikh Ali inscribed his reservations about the quota accord in a footnote to the signed version of OPEC’s communique.

The UAE’s Oteiba made his view known verbally when he emerged from the final session. He sighed and said, “I signed, I signed, I always sign.”

His case up until now has been that he regards his quota as “allocated” and not justly assigned, so he simply feels free to exceed it and never sends output figures to OPEC headquarters.

Highly placed UAE sources say Oteiba was not too concerned if prices weaken a little, since he believes that such weakening would stimulate oil demand.

Among analysts, John Lichtblau, president of the Petroleum Research Foundation, said in the United States of the OPEC deal: “It’s not very positive news because it’s not clear what Kuwait’s position will be.”