Organization of Petroleum Exporting Countries oil ministers gathered in Vienna on Sept. 22 to discuss output quotas and were expected to maintain current levels despite recent strong oil prices.
At presstime, the ministers were widely expected to vote in favor of maintaining their output, less Iraq's production, at a combined 22,976 million b/d, as agreed in March in a bid to boost flagging oil prices (OGJ, Mar. 29, 1999, p. 18).
Although the production cutbacks have done their job-Brent crude for November delivery closed at $22.68/bbl in London trading on Sept. 21, compared with $13.88/bbl for the same benchmark before the March OPEC meeting-OPEC ministers are fearful of raising output too soon.
An OPEC official told OGJ that the gut feeling among delegates gathering in Vienna was that the meeting would be over by the afternoon of Sept. 23. The expectation was that production quotas would be maintained, said the official, because OPEC ministers had been saying consistently that there would be no benefit in increasing output before the current agreement expires in March 2000 (OGJ, Sept. 20, 1999, Newsletter).
"Only then would be the time to assess the situation," said the official. "Although there have been recent oil price rises, the average OPEC price for the year is only a little over $15/bbl, despite the current Brent price being $23/bbl. Ministers are also warning that global crude oil stocks are still too high."
On Sept. 20, the OPEC News Agency (Opecna) reported that the OPEC weekly basket price had improved further to $22.31/bbl, compared with $21.18/bbl in the first week of September.
"According to figures released by the OPEC Secretariat," said Opecna, "the price of the basket so far this year (to Sept. 16) has averaged $15.11/bbl. For 1998 as a whole, the price of the basket averaged $12.28/bbl, compared with $18.68/bbl the previous year."
Meanwhile, OPEC Conference Pres. Youcef Yousfi, the Algerian oil minister, and Iraq's Oil Minister Amer Mohammed Rasheed called for OPEC to maintain its current spirit of cooperation.
Opecna reported that, after a meeting in Vienna on Sept. 18, the two ministers agreed that the organization should continue its commitment to the March production cutting agreement, which reportedly has taken more than 1.7 million b/d of OPEC oil off the global market.
"We share the same willingness to maintain the spirit of cooperation among OPEC countries and to maintain the level of prices," said Yousfi. Rasheed added: "We have a unified position that will be presented to OPEC's meeting in Vienna."
Opecna noted that Gulf Cooperation Council oil producers also called for the output cuts to stay until March 2000. Meeting in Riyadh on Sept. 20, the GCC oil and energy ministers reaffirmed their commitment to the March 1999 agreement, saying they expected other producers to follow suit.
Opecna said the ministers are satisfied with the improvement in oil prices and with the direction the oil market is taking towards stability.
Although traders initially doubted OPEC members' commitment to the March 1999 cutbacks pledge, OPEC producers have stuck to their targets more steadfastly than anticipated, triggering the oil price recovery.
The latest figures from Middle East Economic Survey (see table, p. 25) show that the 10 OPEC members party to the cutbacks agreement produced a total of 23.22 million b/d in August, down from 23.28 million b/d in July and from 25.32 million b/d in March.
Having reviewed the situation of oil supply and demand and the level of the international crude stockpiles, Opecna said the GCC ministers agreed that "stability of prices required continued implementation of the agreement on production cuts until the end of March next year, so that the world stockpile could then retreat to its normal level, securing a balance between world supply and demand."
Kuwait's Oil Minister Sheikh Saud Nasser al-Sabah was reported by the Kuwaiti News Agency to have said that maintaining the current production cuts would not be discussed at any OPEC meeting before March 2000, and that "any other ideas would be out of the question. Commitment to the cuts up to March is an issue that has already been decided and is not subject to any doubt."
While OPEC appears to be prepared to maintain its cutbacks, London's Centre for Global Energy Studies reckons the organization should raise output soon to avoid "trouble down the line."
The analyst said that the much anticipated global stock-draw at which the March 1999 agreement was aimed has begun, although the stock figures of the International Energy Agency, Paris, do not reflect the trend yet.
"Industry stock-draws," said CGES, "in the OECD (Organization for Economic Cooperation and Development) from third quarter 1999 onwards should average around 1.4 million b/d until the end of March 2000, all things being equal. This should bring OECD industry forward stock cover down to the 51-day level next year from 55 days' worth in 1999; and this after assuming a 2 million b/d increase in OPEC production from April 2000 onwards.
"The companies cannot be expected to view the prospect of such low stock cover with equanimity. Surely they will need very high prompt prices in a backwardated market to keep them from hoarding scarce inventories. In the circumstances, Brent averaging $22/bbl in 2000 does not seem especially fanciful."
According to CGES, last month's big issue was whether OPEC's anticipated output boost in March 2000 should be announced in Vienna this month. Since then, market fundamentals have changed, and an OPEC output boost is "imperative" to prevent a fight for crude cargoes during the winter (OGJ, Sept. 20, 1999, p. 23).
"By its current policy," said CGES, "OPEC is digging itself into a deep hole. As night follows day, high prices lead to slower demand growth and more non-OPEC supplies.
"Down the line, another round of output cuts is then required to keep oil prices from sagging. It is a sobering thought that OPEC is now producing almost the same as it was in 1996, while global demand has increased by 3.6 million b/d. If OPEC does not increase output soon, it will be making the same mistake all over again."
New OPEC chief
With the OPEC members apparently lined up in favor of holding their position, the most contentious issue on this meeting's agenda was likely to be the choice of a new secretary general.
Current OPEC Sec. Gen. Rilwanu Lukman has resigned his position to take up a post as adviser to the government of his native country, Nigeria, now that a democratically elected president is set on reforming Nigeria's petroleum industry.
Opecna reported that the GCC members-OPEC members Kuwait, Qatar, Saudi Arabia, and the U.A.E., in addition to Oman and Bahrain-expressed support for the candidate of Saudi Arabia for the post of OPEC chief.
The ministers reportedly said they "considered the Saudi Arabian candidacy for the post an expression of the kingdom's intention to continue its efforts to serve all oil producers and to maintain growth in the world economy."
In June, Saudi Arabia became the first OPEC member to put forward a candidate following Lukman's decision to leave OPEC. He is Sulaiman al-Herbish, chairman of both Arabian Drilling Co. and Saudi Arabian Texaco.
In July, however, Iran subsequently nominated its OPEC Governor, Hossein Kazempour Ardebili, for the top OPEC job, while on Sept. 16 the Algerian government nominated its own energy minister, Youcef Yousfi.