OPEC QUOTAS CALLED UNREALISTIC

Organization of Petroleum Exporting Countries proposals to roll over production agreements for the second time this year are keeping OPEC locked in the grip of completely unrealistic quotas. That's the view of London's Centre for Global Energy Studies, which attributes recent heavy slides in oil prices largely on OPEC's inability to tailor its production to demand. OPEC is seen as unlucky in that weaker than expected demand combined with a possible resumption of Iraqi oil exports to

Aug. 30, 1993

2 min read

Organization of Petroleum Exporting Countries proposals to roll over production agreements for the second time this year are keeping OPEC locked in the grip of completely unrealistic quotas.

That's the view of London's Centre for Global Energy Studies, which attributes recent heavy slides in oil prices largely on OPEC's inability to tailor its production to demand.

OPEC is seen as unlucky in that weaker than expected demand combined with a possible resumption of Iraqi oil exports to put downward pressure on oil prices.

"Although the prospect of Iraqi oil exports has receded, the air of unreality surrounding OPEC's existing quota agreement is still evident," CGES said.

Rolling second quarter's quotas into the third quarter tempted dissatisfied members, particularly Iran, to raise production in response to demand. CGES estimated Iran's July overproduction at 360,000 b/d--more than the recent Middle East Economic Survey figure (OGJ, Aug. 16, p. 22).

"With hindsight, it is clear that overproduction by OPEC during the first and second quarters left a legacy of high crude oil stocks that needed to be reduced in the third quarter to avoid price weakness," CGES said. "So far this has not happened."

CGES expected the zero stock change call on OPEC crude to reach 25.8 million b/d in the fourth quarter. This implied a "far, far too deep" global stock drawdown of 2.2 million b/d for the ceiling to be observed.

The fourth quarter call on OPEC crude, assuming no stock change, is expected to average 25.8 million b/d. This would allow OPEC to produce as much as 25.5 million b/d without depressing prices, CGES said.