Saudis exceed oil quota

Press, 11 September 1986, Page 8

Saudis exceed oil quota

NZPA-Reuter New York

Growing oil industry scepticism over O.P.E.C.’s plan to cut output, which had sent prices up 50 per cent in the past month, is prompting forecasts by analysts that a renewed price fall is looming. The scepticism increased yesterday on the news that Saudi Arabia, one of the architects of the O.P.E.C. agreement to cut output, pumped 5.1 million barrels daily in the first five days of the month, 17 per cent more than allowed by its 4.35 million barrels a day quota. The O.P.E.C. 20 per cent cut in output, which began on September 1, is due to last two months.

The problem, according to the industry analysts surveyed yesterday, is that there seems little chance the cartel can transform this temporary cut into a permanent accord. The 13 Oil Ministers of the Organisation of the Petroleum Exporting Countries took the historic action on August 5 after eight months of falling oil prices, which had gone from over SUS3O ($62.40) a barrel in late November to under SUSIO ($20.80) a barrel in July. “I don’t think that the temporary agreement can last beyond October. There are too many sovereign countries involved and too many differences between them to create a

more permanent arrangement now,” said Daniel Yergin, director of Cambridge Energy Research Associates in Massachusetts.

Although Gulf oil traders said the Saudi excess production in the first five days of September may have been caused by technical factors, rather than a deliberate drive to pump more oil than allowed, the news has contributed to a sudden reversal in the oil price this week. After rising fairly steadily for the last month, prices have fallen sharply this week; West Texas Intermediate, the benchmark American oil, was down SUSI.3O ($2.70) a

barrel in the past two days to about $U515.30 (SNZ3I.BO) on the New York Mercantile Exchange at yesterday’s close.

Analysts and oil officials said O.P.E.C.’s pact had not dealt with questions of how to prevent cheating, how to allocate production in a more permanent fashion and how to develop and maintain the cohesion O.P.E.C. will need to make these decisions, particularly now that the Iran-Iraq war has heated up. Pressure is being put on prices by a rise in inventories over the last six months. “The real battlefield will come this fall when

the oil companies decide whether to sell off their oil inventories accumulated over the last few months,” Mr Yergin said.

These inventories have grown so quickly that many analysts believe much of the stockpiling of oil for the (northern) winter is already complete and will continue to depress prices. Albert Anton, analyst with Carl H. Pforzheimer, said: “What is even more important is that this build is not just in the U.S. but in Western Europe, where inland storage has been filled at the consumer and secondary levels, which is going to depress demand later on this year.”