Crude oil prices have risen to their highest level in months, ahead of the meeting of Organization of Petroleum Exporting Countries ministers scheduled for Mar. 23 in Vienna.
While the price rise appears to be linked to the meeting, there is little confidence, either among industry analysts or even OPEC oil ministers, that the gathering will lead to a market-moving agreement.
Brent crude for April delivery closed at $12.07/bbl in London trading on Mar. 8, having risen from $10.82/bbl on Mar. 1. During the same time, prompt-delivery Brent leapt to $11.58/ bbl from $10.32/bbl.
Some of the market optimism appeared to be linked to a meeting slated for Mar. 11 of oil ministers from the Gulf Cooperation Council (GCC) states: Saudi Arabia, Kuwait, U.A.E., Qatar, Oman, and Bahrain.
Kuwaiti Oil Minister Sheikh Saud Nasser Al-Sabah told reporters on Mar. 9 that the six ministers were to discuss a new round of oil production cutbacks at their meeting in Riyadh.
That same day, news agencies carried reports of an accord between Saudi Arabia and Iran, which was expected to pave the way for more supply reductions by OPEC members when they meet in Vienna.
Yet having reached a recent high, the market for Brent crude appeared to stop for breath. April-delivery Brent fell to $11.82/bbl by the close of trading on Mar. 9, while prompt Brent slipped to $11.31/bbl.
Saudi-Iran meetingSaudi Arabia was said to have negotiated with Iran for a reduction in Iran's baseline production figure, against which the country's contribution to OPEC production cuts is measured.
Julian Lee, oil analyst at London's Centre for Global Energy Studies (CGES), said the Iranian baseline argument was the main stumbling block for any agreement in Vienna over further OPEC cutbacks.
"Iran has been adamant it will measure cuts from a production rate of 3.9 million b/d," said Lee, "rather than the 3.6 million b/d for February 1998 used by OPEC (OGJ, June 29, 1998, p. 28).
"The other OPEC members have not been in the mood to accept this from Iran. The question now is whether the pain the members are suffering with low oil prices is severe enough to make them hammer out a compromise."
A GCC source said that the agreement between Saudi Arabia and Iran would allow Iran to make any further cuts from its current output level of about 3.6 million b/d, and not from the 3.318 million b/d level pledged in June 1998.
The agreement came as a result of visits by Iranian Foreign Minister Kamal Kharrazi to Saudi Arabia and Libya, in a bid to rally support for fresh production cuts to help revive oil prices.
Among the big OPEC producers, Venezuela is now seen as the most likely to speak against any further cuts. Alvaro Silva, Venezuela's deputy oil minister, said the country would not call for further cuts in Vienna but would ask OPEC members to comply with last year's agreement to cut a combined 2.6 million b/d from OPEC output.
"The market is hoping for further cuts of more than 1 million b/d," said Lee. "If no further cuts are promised in Vienna, the market will react pretty negatively. Hopefully, OPEC is aware of this so the ministers can work behind closed doors to reach a resolve."
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