OPEC May Find Higher Oil Prices an Elusive Goal : Energy: The world is awash in petroleum. In addition, recession in the West and mild winter weather have reduced demand.
Oil ministers from the Organization of Petroleum Exporting Countries meet here starting today for the first time since the end of the Persian Gulf War, but they face perhaps insurmountable obstacles to their goal of nudging world oil prices back up.
OPEC--especially Saudi Arabia--proved extremely effective last year in pumping enough new oil to compensate for production lost from Iraq and Kuwait after the former invaded the latter on Aug. 2.
“As a consequence,” said Sam Milan, a senior economist with DRI-McGraw Hill in Paris, “there’s just too much oil around. What nobody wants to buy is afloat on tankers.”
Most analysts do not expect OPEC to prove as adept at restraining production now that the war is over. Even though the still-blazing Kuwaiti oil fields will take years to rebuild and most of the world is continuing to boycott Iraqi oil, prices are expected to rise little or not at all from their current level of $17 to $18 a barrel.
That is about where prices stood last July, just before Iraq’s invasion of Kuwait. It is a far cry from the peak of just over $40 that was reached shortly after the invasion, and it is less than the $21 goal set by Saudi King Fahd and his government.
(Retail gasoline is also cheaper than it was before Iraq invaded Kuwait, according to the latest Lundberg Survey of 13,600 U.S. gasoline stations. The average price for all grades of gasoline at full- and self-serve stations was $1.1688 on Friday, down 3.46 cents since Feb. 2 and 30.1 cents since prices peaked Oct. 19. Just before the Aug. 2 invasion, the average was $1.1771, analyst Trilby Lundberg said.)
Oil ministers arriving Sunday in Geneva offered differing views of what they expected to accomplish. Many said they hoped that OPEC could adopt a formula for reducing production and boosting prices.
“I hope we will have a snappy meeting to address the problem of surplus oil,” said Jubril Aminu of Nigeria.
Ginandjar Kartasasmita of Indonesia said OPEC “will take all the decisions that are necessary. If a cut is necessary, we will do it.”
But Hisham Nazir of Saudi Arabia, which carries the greatest clout at the meetings because it pumps more than one-third of OPEC oil, sought to dampen such expectations.
Asked if OPEC were prepared to cut production levels, he said: “It is only a monitoring meeting. It has nothing to do with all that.” Serious decisions, he said, will have to wait until June, when the outlook for Kuwait’s oil production should be clearer.
The meeting could provide the first opportunity since last August for high-ranking Iraqi and Kuwaiti officials to sit around the same table. However, no Iraqi oil officials arrived Sunday, and it remained unclear whether any would.
Circumstances have conspired against OPEC just when many of its members would like to stem the supply of oil and nudge prices back up.
Recessions in three of the seven largest industrial nations--the United States, Britain and Canada--have cut into worldwide petroleum demand. The warm winter in North America also contributed.
Compared to the same period a year earlier, the United States and Canada consumed 6% less oil in the final three months of last year and Britain more than 10% less, according to DRI-McGraw Hill. The Paris-based International Energy Agency says oil inventories worldwide are at their highest levels in 10 years.
On the production side, many of OPEC’s members have good reasons to resist the sorts of strict pumping limits that would be necessary to push prices up.
One reason is the Gulf War itself. Saudi Arabia may be so rich that it does not have to worry about precisely how many millions of barrels a day it pumps. But other Gulf producers, notably the United Arab Emirates, need to raise money to pay for their share of the war’s costs.
And beyond the Gulf, OPEC members Nigeria and Venezuela face economic trouble at home and are unlikely to cut their production voluntarily.
OPEC leaders acknowledge the problem and blame the world’s major oil-consuming nations for deliberately building up stockpiles in an effort to drive prices down.
Algerian Oil Minister Sadek Boussena, OPEC’s president, warned in December that at the end of the Gulf War, “the world will be awash with oil and we shall be faced with another decade of turmoil and iniquitous waste of finite resources in the international oil market.”
At its meeting last July, a week before the Iraqi invasion, OPEC set national quotas that added up to production of 22.5 million barrels of crude a day for the second half of 1990.
Iraq and Kuwait were responsible for 4.6 million barrels of the total. After the invasion, when the rest of the world all but stopped buying oil from those two countries, OPEC discarded its quotas and scrambled to fill the gap.
Saudi Arabia alone was responsible for filling more than half. In the final three months of the year, according to the International Energy Agency, the Saudis pumped 8 million barrels a day, fully 2.6 million barrels more than their quota.
The United Arab Emirates produced 2.3 million barrels, more than 50% above its quota. Nigeria, Libya, Venezuela and even tiny Gabon also helped make up the difference.
So fourth-quarter production, despite a negligible contribution from Iraq and Kuwait, actually exceeded the 22.5-million-barrel quota by 600,000 barrels, the IEA said.
PLUGGING THE GAP
Oil supplies available outside the Soviet Union and Eastern Europe, in millions of barrels per day. “Before the war” is represented by April through June, 1990; “during the war” is the month of February, 1991.
Before war During war Iraq 3.0 0.1 Kuwait 1.7 0.0 Saudi Arabia 5.4 8.3 Other OPEC 15.4 16.5 Total OPEC 25.5 24.9 United States 8.8 9.0 Canada 1.9 2.0 North Sea 3.9 4.0 Mexico 2.9 3.0 Other non-OPEC 9.3 9.4 Total non-OPEC 26.8 27.4 Trade with USSR, Eastern Europe 1.8 1.2 Total 54.1 53.5
Source: International Energy Agency Monthly Oil Report
