O.P.E.C. agonises over softening oil prices

Press, 9 February 1982, Page 16

O.P.E.C. agonises over softening oil prices

From the “Economist,” London

Crude facts

O.P.E.C. is on the run. After months of infighting, the cartel of 13 oil producing countries thought it had settled last October on a “unified” price of $34 a barrel. That price is now about to crumble a§ demand for oil weakens. Unless Saudi Arabia defends it soon with another cut in its oil production, O.P.E.C. will have to meet again well before its next scheduled gathering in May at Quito in Ecuador. There will have to be another emergency meeting to try to. agree about new and lower oil prices. Sheikh Ahmed Zaki Yamani, the Saudi Oil Minister, indicated late last month that the Saudis would not formally reduce their production of 8.5 M barrels a day to defend the $34 price, but they may allow the market to do so. Saudi output was cut from 9.6 M barrels a day to 8.5 M barrels a day in October as part of the agreement about a unified price. This still leaves the kingdom with about 40 per cent of total O.P.E.C. output, and those most influential in deciding Saudi oil policy would prefer to chop production again rather than prices. Sheikh Yamani reckons his Finance Minister would be happy with the revenue from output as low as 6.2 M barrels a day .The Saudis will not have to cut that much (at least until Iran and Iraq are back in full production), but a reduction of IM barrels a day is possible. As the pressure for official O.P.E.C. price curbs grows (spot prices . are slumping badly), oil market forecasters, now a thoroughly shamed breed, are retracting their original predictions of a modest rise in consumption this year. A year ago they .thought demand for oil would revive somewhat in 1981. Instead, it was down by another 6 per cent, after falling by 8 per cent in 1980, and seems likely to fall again in 1982. Sheikh Yamani has changed his tune too. He had expected a balance between supply and demand by mid-1982, as the oil

companies replenished oil stocks they are now depleting. That, he says, will now be delayed by the receding American ' economy for several months at least.

• The International Energy Agency, the consumer’s club, is sticking to its guess that oil demand will fall to 26.5 M barrels a day in the year 2000 from 36.5 M barrels a day in 1980. If so, O.P.E.C.’s production may never again have to rise above 25M barrels a day. It will probably hover this year below its daily average for 1981 of 23M barrels a day, its lowest since the late 19605. Weak demand for oil has forced O.P.E.C. and nonO.P.E.C. producers to reduce prices for medium and heavy crude oils by as much as $2 a

barrel since October. Producers of the higher-quality African oils (Libya, Nigeria and Alegria) were reluctant to cut prices. They hoped for a hardening of the market. Instead it has softened and their prices, at $2-$3 a barrel above the official Saudi market price, are now far too high. The oil companies have held back on buying throughout 0.P.E.C., putting downward pressure on prices. Lighter oils are certain to drop further. Last month oil 'companies were pressing for a cut of up to $1 a barrel in the price for North Sea crude. They might get it down by 25 cets. They will then turn the heat on comparable high-quality O.P.E.C. oils, like Libya’s and Algeria’s.