OPEC Will Reduce Output Slightly to Pump Up Oil Prices

The Organization of Petroleum Exporting Countries reached agreement Tuesday to modestly restrain oil production, and world oil markets promptly drove up the price of oil by 69 cents a barrel.

OPEC’s majority, with Saudi Arabia showing the way, set a production ceiling of 22.3 million barrels a day for the three months beginning April 1. That is about 1 million barrels below current production but a scant 200,000 barrels less than the ceiling set last July, a week before Iraq’s invasion of Kuwait threw the world’s oil markets into turmoil.

Iran and Algeria, which had pressed for deeper production cuts, dissented from the OPEC decision.

Analysts said most OPEC members will be allowed to produce somewhat more than last July’s levels to offset lost production from Kuwait, whose oil-producing capacity was destroyed during the Gulf War, and from Iraq, whose oil remains subject to a United Nations-sponsored boycott.

Saudi Arabia, by contrast, was freed to produce a lot more--fully 3 million barrels a day more than its 5.4-million-barrel quota of last July.

“The Saudis clearly restored their dominance in OPEC,” said an American oil trader who asked not to be identified. “They listened politely and then told everybody else how it was going to be, and that was the end of that.”

OPEC Secretary General Subroto, calling the agreement “better than expected,” said it was designed to push the price of OPEC oil back up to the $21-a-barrel level that the cartel set as its goal before the Iraqi invasion. Last week, the comparable price was $17.72 a barrel.

Markets taking their first look at the action pushed prices in the direction OPEC intended, if not very far. On the New York Mercantile Exchange, oil for April delivery closed up 69 cents Tuesday at $19.68 a barrel.

“The (OPEC) cuts are insignificant,” said Tom Blakeslee, an analyst with Pegasus Econometrics in New York, “but the fact that OPEC came up with anything helped the market.”

Analysts in Geneva had a distinctly different view. They said the agreement fell far short of the production cut necessary to reach $21 a barrel.

“Prices will go lower, but only a little,” said Harry Neustein, a New York-based independent oil trader.

Another American trader, requesting anonymity, predicted that oil prices could ultimately tumble as much as $2 a barrel, as they did last May when OPEC was unable to agree on a convincing ceiling on production. The trader said oil markets had been looking for an OPEC production level of less than 22 million barrels a day.

Just as important, he said, the markets had been looking for unity within OPEC and found none.