OPEC, Gambling on Rise in Demand This Winter, Decides Against Cutting Oil Production

The world’s leading oil producers decided Wednesday against reducing oil production in the coming months, gambling that demand will rise in winter and lift sagging prices.

The announcement by OPEC Secretary General Subroto came after two days of talks that centered on whether restraining supplies would push up prices, now near three-year lows.

The 12-nation Organization of Petroleum Exporting Countries was under pressure to further limit production beyond the current ceiling of 24.5 million barrels a day for the October-March period.

Kuwaiti Oil Minister Ali Ahmed Baghli said Wednesday’s decision “was the best thing” for OPEC.

The average price of a basket of crudes monitored by the group plunged to $14.33 a 42-gallon barrel Tuesday, well under the cartel’s target of $21.

Before the talks ended, analysts had predicted a failure to curb production would send prices tumbling. Rumors that the group would not cut back caused prices to fall somewhat in international markets Wednesday.

Senior delegates said Saudi Arabia and Iran, the cartel’s two largest producers, were flexible about a supply reduction if it would translate into higher prices in the coming months.

But Venezuela, another important supplier, said any reduction would quickly be offset by outside producers, leaving prices at weak levels. Two other countries were siding with Venezuela, delegates said.

In the end, Subroto said, the producers agreed to maintain their current production ceiling. That output level was set in a carefully crafted agreement the nations negotiated in September.

“The conference decided the agreement of September is both reasonable and objective and that it should be given the necessary time to achieve (its) goals,” Subroto told reporters.

He said the nations agreed to “exercise the greatest restraint and strictly adhere to this agreement.”

In September, Saudi Arabia agreed to freeze production at 8 million barrels a day in the October-March period. Iran’s output was capped at 3.6 million barrels a day.

Unlike in the past, the nations have generally complied with the output limits, but demand has not been as robust as they had forecast.

In establishing the current production ceiling, OPEC had hoped excess crude on the market would be sold, lifting prices. Demand for crude normally rises during the winter in the United States and Europe.

But sales have been weak in Europe and East Asia, regions still suffering from economic recession. Moreover, North Sea oil producers Britain and Norway have increased production more than anticipated.

OPEC recently lowered its estimate of demand during the final quarter of 1993 by nearly 300,000 barrels a day to 25.1 million barrels.

OPEC’s members are Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.