O.P.E.C. likely to maintain oil price, raise output

Press, 21 May 1987, Page 31

O.P.E.C. likely to maintain oil price, raise output

By

PHILIP SHEHADI

of Reuters Abu Dhabi

The Organisation of Petroleum Exporting Countries is likely to keep its $lB a barrel oil price and slightly raise output at its meeting next month in Vienna, Gulf oil officials and traders said. Oil Ministers from the six Gulf Co-operation Council States are expected to renew support for the $lB price when they gather soon in the Saudi Arabian port of Jeddah, a Gulf oil official told Reuters.

They are meeting to cooperate positions ahead of the O.P.E.C. conference, opening on June 25. Four G.C.C. States — Saudi Arabia, the United Arab Emirates, Qatar and Kuwait — produce some 40 per cent of O.P.E.C. oil while the other two, Bahrain and Oman, although non-members closely follow O.P.E.C. policies. Speculation that O.P.E.C. may raise its benchmark price next

month ' pushed up the price of United States crude recently to a 16month high of $19.80 a barrel.

The speculation stems from the recent strength of oil prices on the free or spot market, which have climbed to around $lB a barrel from $l5 at the start of the year, and the perceived need of oil producing States to compensate for the dollar’s falling value on international exchange markets.

But the official said “none of the G.C.C. States will accept any increase in (official) oil prices under any circumstances. It is out of the question.” The U.A.E. oil Minister, Mana Said al-Oteiba, told the Kuwait news agency in Kuwait he did not expect any change in O.P.E.C.’s December pact to curb oil production and fix prices at an average $lB a barrel. Gulf Arab States fear a higher benchmark could dampen world demand trigger an oil market collapse similar to one

last year that sent prices tumbling to below $8 a barrel. The December accord gave O.P.E.C.’s 13 members output quotas totalling 15.8 million barrels per day for the first half of this year and a tentative 16.6 million b.p.d. and 18.3 million b.p.d. for the third and fourth quarters respectively.

Officials and traders say the outstanding issue for both O.P.E.C. and the G.C.C. will not be whether to raise prices but whether to boost output and if so, by how much.

Oteiba has forecast demand for O.P.E.C. oil in the third quarter at 17.4 million b.p.d., a level some Gulf-based traders agree with. That would allow O.P.E.C. to boost its ceiling to 16.6 million b.p.d. as envisaged in December and still have 800,000 b.p.d. left for anticipated over production by Iraq and the U.A.E. Iraq pumps around 600,000 b.p.d. jPver its quota of 1.46 fr million

b.p.d., saying it must have production parity with Iran, its enemy in the Gulf war whose quota is 2.255 million b.p.d. The U.A.E., a federation of seven emirates of which four are sovereign oil producers, exceeds its current 902,000 b.p.d. quota by around 200,000, industry sources say.

Officials said the 16.6 million b.p.d. ceiling would meet O.P.E.C.’s need for higher revenue without endangering hardwon oil market stability.

But traders see two potential problems. The first is that anticipated growth in summer demand, mainly from vaca-tion-related petrol sales in the West and power generation in Japan, may not materialise. “O.P.E.C. cannot depend on too much demand in summer,” said a Gulf trader. The international energy agency puts third quarter demand for O.P.E.C. oil at only 16.4 million b.p.d.

The second problem is; Oteiba’s demand for sr

higher U.A.E. quota. He recently attacked the existing quota as unfair and said he would insist on one commensurate with his country’s huge oil reserves and production capacity.

Officials say this evidently means the U.A.E. will seek a quota higher than the 948,000 b.p.d. envisaged in the December pact.

“O.P.E.C.’s unity will be at stake if quotas have to be divided up again,” said one trader. "Iran and Iraq will be disputing again, Nigeria and some of the smaller producers will also ask for more.”

Traders said Saudi Arabia and Kuwait were likely to try to persuade the. U.A.E. to soften its demands.

But Oteiba has said he is tired of U.A.E.’s being described as O.P.E.C.’s "troublesome child” and wants its long-standing quota complaint settled once and for all.