OPEC AGREES TO CUT OIL FLOW 859,000 B/D IN SECOND QUARTER

The Organization of Petroleum Exporting Countries last week voted to cut second quarter production quotas to 23.582 million b/d. The new quotas, down 859,000 b/d from the first quarter, will be effective 1 month earlier than normal. They will run from Mar. 1 to July 1 in a bid by OPEC to prevent further drops in oil prices. A stormy meeting in Vienna Feb. 13-16 was dominated by Kuwait's agreement to cut production to 1.6 million b/d from its claimed 1.98 million b/d current flow. This was

Feb. 23, 1993

3 min read

The Organization of Petroleum Exporting Countries last week voted to cut second quarter production quotas to 23.582 million b/d.

The new quotas, down 859,000 b/d from the first quarter, will be effective 1 month earlier than normal. They will run from Mar. 1 to July 1 in a bid by OPEC to prevent further drops in oil prices.

A stormy meeting in Vienna Feb. 13-16 was dominated by Kuwait's agreement to cut production to 1.6 million b/d from its claimed 1.98 million b/d current flow. This was still a 100,000 b/d increase from its first quarter quota.

As a reward, the remaining 11 OPEC members agreed eventually to grant Kuwait third quarter production in line with countries of similar productive capacity, historical market share, and quota.

MARKET REACTION

Markets reacted negatively as talks carried over from the weekend. Brent crude for April delivery dipped 51cts to close at $17.96/bbl Feb. 15. As news of an agreement filtered out late on Feb. 16, however, the price rallied to $18.15/bbl by close of trading.

Leo Drollas, chief economist at the Centre for Global Energy Studies (CGES), London, called the latest set of production quotas "a leaky agreement, as always." But he said production above second quarter quotas will not cause an oil price collapse.

"Algeria, Gabon, and Indonesia will not cut production,' Drollas predicted. "The spotlight will be on Nigeria, which has been producing over 2 million b/d despite a 1.8 million quota."

Saudi Arabia, Iran, Kuwait, and Venezuela will cut production to agreed levels, Drollas said. Kuwaiti Oil Minister Ali al-Baghli hinted his country will raise its production if other countries break the agreement.

OPEC set up a new monitoring committee made up of the oil ministers of Libya and Qatar and OPEC Sec. Gen. Subroto. The committee is to contact members regularly to check production volumes and raise the alarm if quotas are exceeded.

"Second quarter demand for OPEC crude is likely to be about 23.6 million b/d," Drollas said. "If leakage raises OPEC output to about 24.3 million b/d for the second quarter, as CGES predicts, the effect on prices will not be too bad."

The second quarter normally is a period of stock building. So if stocks do not build now, supply will be tight in the third and fourth quarters, Drollas said.

"Companies' total oil stocks worldwide have dropped to about 60 days of supply, down significantly from the same time last year," he said. "Worldwide, there is no tremendous excess of stocks."

The next OPEC ministers' meeting is scheduled June 8 in Vienna.