9 of 11 OPEC Nations Agree to Boost Output

The Organization of Petroleum Exporting Countries, though it failed to reach unanimous agreement, said Tuesday that it will boost oil production modestly, but analysts doubted the action will lower gasoline prices in time for summer road trips.

The White House, which has conducted an intense lobbying campaign during the last several weeks to persuade OPEC ministers to open the oil taps, hailed the agreement as a positive step that will help stabilize oil and gasoline prices.

But the accord fell well short of the U.S. goal of an increase of more than 2 million barrels a day by OPEC. Instead, after two days of closed-door wrangling in Vienna, ministers from nine of the cartel’s 11 member countries decided to hike production quotas by 1.45 million barrels, to a total of about 21 million barrels daily beginning Saturday.

“It’s too little, too late,” said Philip K. Verleger, a Newport Beach-based energy economist with Brattle Group, a Boston-based consulting company.

OPEC’s move restores about a third of the 4.2 million barrels of daily production that OPEC eliminated a year ago when oil prices were hovering near nine-year lows. Since then, prices have nearly tripled, peaking at slightly more than $34 a barrel three weeks ago. Gasoline prices have soared to record levels, not accounting for inflation.

OPEC’s 11 members produce about one of every three of the 76 million barrels of oil consumed worldwide per day. The cartel has been searching for a way to keep higher revenues for member countries while appeasing the United States and other large users.

Saudi Arabia was pushing to increase quotas by 1.7 million barrels a day, but Iran rebelled against the United States’ gas-pump diplomacy and refused to participate in Tuesday’s agreement.

Iran, which favored a smaller production hike, formally protested the 1.45-million-barrel increase. OPEC’s second-largest producer after Saudi Arabia, it said it would increase production somewhat but did not indicate by how much.

(U.N.-imposed sanctions have kept Iraq out of the latest quota negotiations, as well as those last March that brought the production cuts.)

The non-OPEC oil-producing nations of Mexico, Norway and Oman are expected to follow OPEC’s lead and increase output--to a total of somewhere between 100,000 and 300,000 more barrels a day.

OPEC officials said they will meet again in June to reassess prices and production levels.

Reaction to the agreement was mixed.

President Clinton called the agreement “a positive development.” U.S. Energy Secretary Bill Richardson, who spearheaded the administration’s intensive diplomatic effort, said it was good news for American consumers, producing countries and the international economy.

“I think our quiet diplomacy worked,” said Richardson, who traveled to the Mideast and drafted Vice President Al Gore to telephone eight heads of state in the last 10 days. “It got results.”

Richardson estimated that the net increase in production will be 1.8 million barrels a day counting the increase from OPEC countries, expected increases from non-OPEC countries and what he called “leakage,” a polite term for cheating on quota limits by OPEC members. The International Energy Agency, a Paris-based oil watchdog group, estimated that OPEC’s noncompliance with its quotas results in about 1 million barrels a day of extra production.

The 1.8-million-barrel increase will be 200,000 barrels a day short of the target Richardson had sought, but he said at a news conference that he is satisfied with the lower figure.

Richardson said the White House will call major refiners to see how fast they can move this extra oil into the market. He estimated that it will take four to five weeks--an extremely rapid pace by industry standards.

The American Trucking Assn. said OPEC’s move is encouraging but falls short. The organization urged Clinton to release oil from the Strategic Petroleum Reserve. Oil market analysts said the higher production levels might be sufficient to meet sluggish second-quarter demand but will not replenish extremely low oil and gasoline inventories and will not satisfy the higher demand for oil in the third quarter’s summer driving season or the fourth quarter’s weather cool-down.

The aim of the production increase is to bring down oil prices. Every $1 decrease in the price of a 42-gallon barrel of oil reduces gasoline prices by 2.5 cents a gallon.

Economist Verleger said that to bring down prices, OPEC needed to boost production by 2 million barrels a day just for the second quarter. Another million barrels of daily production would be required in the third quarter and yet another in the fourth, he said.

“Unless there’s an economic slowdown or an increase in conservation--people turning in all these SUVs I’m trying to steer around--we’re in for higher prices,” Verleger said. Because gasoline inventories are so low across the nation, any refinery problems or even expected summer demand increases will send prices soaring, he said.

David Pursell, vice president of upstream research for Simmons & Co., a Houston-based investment firm, said he thinks that Iran was playing political games at the OPEC meeting but ultimately will increase production somewhat to garner additional oil revenue. However, he said, the new quotas bring all OPEC countries near the limit of their production capacity, which has shrunk in the last two years because of reduced investment in drilling.

Pursell predicted that OPEC will boost production again before the end of the year, with most of the extra barrels coming from Saudi Arabia, the only country currently capable of producing significant amounts of additional oil.

OPEC’s decision is unlikely to dissuade Senate Republicans from their plan to roll back federal gas taxes in response to rising pump prices.

Under a measure pushed by Majority Leader Trent Lott of Mississippi, the government would suspend a 4.3-cent-per-gallon excise tax from April 15 to Jan. 1. And if gas prices reached a national average of $2 per gallon, the government would roll back the rest of its gas taxes--just over 14 cents per gallon.

The total federal gasoline tax, about 18.4 cents per gallon, has grown gradually since 1932. The most recent increase, 4.3 cents, came in 1993 during the first year of the Clinton administration.

Before the OPEC decision was announced Tuesday, Sen. Larry E. Craig (R-Idaho), a member of the Republican leadership, said that if OPEC had increased production by 1.7 million barrels, that would have produced only “a momentary blink” in fuel costs. Republicans, he said, will press ahead with the proposal to cut the federal gas tax.

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Times staff writer Nick Anderson in Washington contributed to this report.

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* OIL PROFITS TAX URGED

State Atty. Gen. Bill Lockyer urged lawmakers to tax oil firms’ “excess profits.” A3