Accessibility links

World: OPEC Ministers Fail To Agree On New Strategies

  • Charles Recknagel

Prague, 26 November 1998 (RFE/RL) -- OPEC oil ministers concluded a meeting in Vienna today unable to agree on new strategies for reducing the output of member states to raise the sagging price of oil.

Correspondents say that the 11 ministers had hoped to settle quotas through to the end of next year, but deep differences between those favoring tough cuts and those wanting to go on producing as before could not be overcome.

Iran, Kuwait, Libya and Algeria led the push for cuts that would boost prices. Others, led by the world's biggest producer, Saudi Arabia, were adamantly opposed.

A further conference is to be held starting March 23 in Vienna to review prices and the cartel's strategy.

Today's regularly scheduled meeting in Vienna came less than six months after the Organization for Petroleum Exporting Countries decided in June on a second round of production cutbacks. Those cuts were intended to reduce the cartel's production of oil for most of this year by 10 percent -- or almost 2.6 million barrels per day (bpd).

The cartel hopes that the cuts will help dry up an oversupply of oil on the world market which has caused oil prices over the past year to repeatedly drop below $12 a barrel, the lowest in a decade.

The price plunge is due to OPEC's own mistake in deciding to raise its production by 10 percent last November -- when prices were around $18 per barrel -- plus the ongoing financial crisis in Asia which has robbed the cartel of its biggest customers.

Analysts say that OPEC has succeeded in reducing production by some 2.2 million bpd, saving oil prices from plunging below $10 per barrel. But the cartel keeps falling short of its agreed-upon goal of a 2.6 million bpd cut, which it hopes will set prices rising again. The reason: many members continue to overproduce despite their pledges to cut back. Peter Bogin, an oil expert at Cambridge Energy Research Associates in Paris, says that the overproducers are not likely to change behavior.

"Each country has its different reasons for over-producing. Those countries which have more foreign company participation (find) it is very difficult to go in and tell the private foreign companies you need to cut production. Those companies, after all, have paid money to come in an produce oil so they expect to be able to produce no matter what the price is without interference by the host government. There are, of course, economic concerns, there are political concerns, there are social concerns, each country has to deal with its own domestic situation and so each country is going to react differently to the production cuts."

Correspondents say that Venezuela and Iran, OPEC's second and third biggest producers after Saudi Arabia, currently appear to be the countries most clearly exceeding June's cutback ceilings.

According to the latest figures from the International Energy Agency (IEA), Iran overproduced by 300,000 bpd last month, while Venezuela exceeded its quota by almost 100,000 bpd.

Iran denies it is overproducing. Venezuela, which has been reluctant about the oil cuts from the start, is reported to be increasing output for domestic political reasons ahead of its December presidential elections.

Analysts say it is unlikely OPEC will announce any new cuts as long as some members continue to overproduce. Peter Bogin:

"Some of the larger producers, and particularly Saudi Arabia ... have come out rather strongly against any further cuts and the weight of those countries probably will carry the day, when the final decision is reached. Again there is concern by some of those countries that, you know, let's get adherence up to 100 percent before we implement any new cuts ... so it is unlikely in our opinion (that we will see) further cuts being announced ... and if they are announced we have some (doubts) as to whether those cuts will in fact be implemented."

In one measure of the sense of frustration surrounding OPEC's inability to get 100 percent compliance among its own members, Algeria's oil minister Youcef Yousfi has called for an exceptional meeting of the cartel's heads of state to address what he terms the "price crisis." The cartel has not held a heads-of-state summit in 23 years.

OPEC produces over a third of the world's crude oil. Its 11 member states are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.