KUWAIT TO BOOST OIL PRODUCTION DESPITE LACK OF ACCORD BY OPEC

Kuwait has refused to accept a rollover of production quotas agreed upon by other members of the Organization of Petroleum Exporting Countries.

In a Geneva meeting June 8-10, Kuwait chose instead to boost production 560,000 b/d above its second quarter quota.

Under pressure from a newly elected parliament to increase production, Kuwaiti Oil Minister Ali Ahmed al-Baghli refused an offer by OPEC members of a 10% increase over second quarter quota to 1.76 million b/d.

Al-Baghli insisted that Kuwait will produce as much as 2.16 million b/d in the third quarter. Iran led opposition to Kuwait, arguing that increased production will further weaken prices and warning OPEC members against setting a precedent by preferential treatment of Kuwait.

OPEC officials said the February meeting helped boost reference basket oil prices to $18.46/bbl (OGJ, Feb. 22, p. 34). By June 9, however, this price had slipped to $17.66/bbl.

The Kuwaiti delegation issued a statement saving that, despite their country's sacrifice in February, oil prices did not increase. Hence, the country suffered lower volumes and lower prices. "We believe the February agreement gave us parity with member countries of similar capacity and historical quotas and market share. This means a level, as from July 1, of 2.16 million b/d," said Kuwait's delegation.

Kuwait argued for a 2 million b/d production quota in July and August, rising to 2.16 million b/d for September. It rejected OPEC members' proposal as requiring price support to be loaded disproportionately against Kuwait.

CGES VIEW

Taken at face value, the OPEC meeting outcome is ludicrous, said Leo Drollas, chief economist at the Centre for Global Energy Studies, London. A rollover extends an unrealistic 23.582 million b/d total quota set in February into the third quarter.

However, if OPEC's agreement is taken as a rollover of the current 24.2 million b/d produced by OPEC rather than declared quotas, the agreement makes more sense, Drollas said.

"With Kuwait acting sensibly--and allowing for overproduction by Nigeria, Iran, and the U.A.E.--third quarter output would be around 24.8 million b/d, which would be acceptable for the market." Drollas said the market reacted badly to the news of the new agreement, but prices will pick up again once traders realize the market will not be flooded with oil.

North Sea Brent crude for July delivery fell from $18.26/bbl June 9 to $17.96/bbl at close of trading the next day. The decline continued to $17.66/bbl by start of trading June 14.

The rollover avoided arguments over new quotas, Drollas pointed out. This will allow OPEC members to argue over shares of a greater demand in the fourth quarter when the call on OPEC production likely will be 26 million b/d.

The conference agreed to a meeting of its ministerial monitoring committee Sept. 23 in Geneva, in which fourth quarter production levels will be set.