WATCHING THE WORLD OPEC RESTRAINT KEY TO OIL PRICES

This year promises to be a difficult one for the Organization of Petroleum Exporting Countries unless it can fashion and adhere to a clear, consistent policy. OPEC's productive capacity is scheduled to rise 2.7 million b/d this year, while added demand for OPEC oil is likely to be only 1.3 million b/d, the same as last year. Because of this, says the Centre for Global Energy Studies (CGES), London, the temptation will be to produce that little bit extra-if not for Saudi Arabia, then

Jan. 26, 1993

3 min read

This year promises to be a difficult one for the Organization of Petroleum Exporting Countries unless it can fashion and adhere to a clear, consistent policy.

OPEC's productive capacity is scheduled to rise 2.7 million b/d this year, while added demand for OPEC oil is likely to be only 1.3 million b/d, the same as last year.

Because of this, says the Centre for Global Energy Studies (CGES), London, the temptation will be to produce that little bit extra-if not for Saudi Arabia, then certainly for Iran.

Iran's sustainable productive capacity is expected to rise by 800,000 b/d or 30%, more than any other OPEC member. The other major increases will be Kuwait's 700,000 b/d or 26% and Saudi Arabia's 500,000 b/d, 19%.

IRAN WANTS MORE

Iran felt it was mistreated in 1992 because Saudi and Kuwaiti shares of OPEC incremental production rose more than their corresponding shares of added productive capacity. This year Iran will push hard for extra production, but Venezuela, United Arab Emirates, Libya, and Nigeria also will want an increase.

The next OPEC ministerial meeting is scheduled Feb. 13. Top of the agenda will be second quarter production ceilings, along with the decline in oil prices, said Mohammed Al-Sahlawi, OPEC chief of information.

Oversupply is behind the current low oil price. Hence OPEC Pres. Alirio Parra, Venezuela's energy minister, planned a tour of the Middle East last week to gain support for a cut in production.

Second quarter OPEC ceilings usually are about 1.5 million b/d less than fourth and first quarter levels. The second quarter ceiling agreed at the next meeting therefore would be about 23.5 million b/d.

NIGHTMARE SCENARIO

CGES predicted that if OPEC flow is restrained, production would be 24.7 million b/d in first quarter 1993, 24.6 million b/d in the second quarter, 25.8 million b/d in the third, and 26.7 million b/d in the fourth. Price changes in each quarter, said CGES, would be -1.6%, -3%, +3%, and +5%.

If production is not checked, expected OPEC production by quarters is 25 million b/d, 24.9 million b/d, 26.1 million b/d, and 26.7 million b/d, with corresponding price changes of - 3.5%, - 8.2%, - 3.9%, and -0.3%.

The outcome could be far worse. The "nightmare scenario," CGES said, would be OPEC undiscipline and a return of Iraq to the market. But with Saddam still around, Iraq will not be allowed to export oil. If Saddam goes, OPEC members are likely to share production cuts to welcome Iraq back into the fold rather than risk a price vortex.