Oil ministers of the Organization of Petroleum Exporting Countries (OPEC) are meeting in Vienna today in a triumphant mood, after seeing oil prices rebound from a two-year slump. RFE/RL correspondent Charles Recknagel looks at how the cartel revived oil prices and how long that success is likely to continue.
Prague, 22 September 1999 (RFE/RL) -- When OPEC oil ministers last met in Vienna six months ago, the oil market could not have looked more different than it does today.
At that time, oil prices were stuck at some of the lowest levels seen in a decade. Just a month earlier, benchmark prices had sunk to under $10 a barrel. That was a sign that prices were as far as ever from recovering from a slump in demand triggered by Asia's 1997 economic crisis. Still worse, two previous OPEC attempts to cut back production and push up prices had done little except to prevent prices from falling further.
But today, the oil ministers have reasons to celebrate. Benchmark prices for crude oil have doubled over the last six months and now range around $24, a level not seen since early 1997. Better yet for the oil producers, the only talk in the market now is how much higher the prices may go.
What happened to so dramatically improve OPEC's fortunes?
The answer is easy. After their two previous attempts to cut back oil production, the OPEC ministers decided last March to make a third attempt, and this time they succeeded. They agreed to reduce the world's daily oil production by more than 5 percent. And this time, the OPEC members -- many of whom are notorious for over pumping any limits they set as a group -- stuck to their promises.
Analysts say it is no surprise that massively cutting the world's supply of oil forced up its price. But they say they were surprised that OPEC finally showed enough unity for the strategy to succeed so well.
Peter Bogin, an oil industry analyst at Cambridge Energy Associates in Paris:
"I think we all are surprised at the degree to which OPEC has respected this March accord. I think the change in Venezuela's political leadership has really helped, and I think it was underestimated how much the entente between Iran and Saudi Arabia has contributed to making Iran a strong player in respecting the agreement."
Venezuela, which is in greater need of revenues than most OPEC members, has in the past routinely over pumped its quotas in order to increase its oil income. But since President Hugo Chavez took office in February, Caracas has become a team player.
At the same time, Iran has resolved a long dispute with OPEC over how much it should cut back and has worked closely with Saudi Arabia to build trust in the cartel.
But if OPEC's new-found unity has forced up prices, the high prices increase the temptation for members to again overproduce and reap more benefits from the better rates. Bogin says that raises the possibility that over the next months, OPEC could become a victim of its own success:
"How long will [the unity] last, that is anybody's guess. They only have six months before the agreement comes to an end, and the question is: Will they make it that far without bringing the agreement to its own demise before that time?"
In an attempt to assure each other that this will not happen, the oil ministers meeting in Vienna today are expected to reaffirm their commitment to the cutback accord through its expiration date of March next year. But, so far, any suggestions within OPEC to extend cutbacks beyond that date have gained little hearing, leaving the future open.
As long as OPEC holds to its March accord, oil brokers expect prices for crude to stay within a range of $20 to $25 a barrel. Many analysts believe it is in OPEC's own interest to ensure prices do not cross the $25 line, saying that would choke off demand from less prosperous countries. But they also predict the price of crude could
make brief leaps up to as much as $30 a barrel during the winter if the weather is severe and pushes up demand in Western countries.
Meanwhile, any major disagreements at today's meeting are likely to center on the election of a new OPEC secretary-general to replace outgoing Rilwanu Lukman of Nigeria.
The main contenders are Iran's OPEC governor Hossein Khazempour Ardebili and Saudi Arabia's OPEC governor Suleiman Jafir al-Herbish. Tehran and Riyadh are reported to have agreed to share the position over the next six years. But it is unclear whether they can win the unanimous support of the other OPEC states that is necessary.
Iraq is likely to strongly object to an Iranian candidate, after fighting a war against Tehran in the 1980s. Baghdad is also no supporter of Saudi Arabia, which sided with a US-led coalition to evict it from Kuwait in 1991. Instead, Baghdad has proposed its own candidate: senior Oil Ministry official Abdul Amir al-Anbari, offering the prospect of a sharp debate in today's session.
OPEC produces 35 percent of world's total oil supply. The cartel's 11 members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Qatar and Venezuela.