OPEC DUCKS QUOTA ISSUE AMID GLUT WORRIES

The Organization of Petroleum Exporting Countries has ducked the dicey question of reestablishing quotas despite the looming prospect of a second quarter oil price slide.

OPEC ministers meeting in Vienna late last month approved continuing free-for-all production in the first quarter and ordered the ministerial monitoring committee to tackle the question of second quarter production levels when it meets in Geneva Feb. 12.

Oil markets responded to the lack of action by dropping futures prices. In the U.S., light sweet crude for next month delivery fell to $20.76/bbl by Dec. 4 closing, a drop of 590 on the week. In Europe, Brent spot for near term delivery slid 450 on the week to close at $19.20/bbl Dec. 4.

Meantime, Iraqi oil officials have updated the status of Iraq's oil industry reconstruction, but statements from Baghdad indicate the government remains firmly opposed to United Nations resolutions calling for Iraqi oil sales for humanitarian purposes.

And the International Energy Agency predicts a continuing slide in Soviet oil production in first half 1992.

OPEC MEETING

The lack of OPEC action on quotas casts a cloud over oil price prospects in second quarter 1992, when seasonal demand declines in tandem with increasing exports from Kuwait could squeeze prices.

Nominally, OPEC has a production ceiling of 23.65 million b/d, but there are no member quotas to back up this figure. In recent weeks, output has edged close to 23.8 million b/d in response to strong market demand.

Second quarter demand could drop 2-3 million b/d from the first quarter coinciding with buildup of Kuwaiti production. According to recent government projections, Kuwait's output could top 800,000 b/d in the second quarter.

The other market wild card is the possibility of resumed Iraqi exports in 1992, although so far there are no signs of Baghdad accepting the U.N. terms for resumed trading.

IRAQ UPDATE

Iraqi Oil Undersecretary Taha Mussa said other oil producers will not be able to produce at capacity for much longer, thereby creating an urgent need for Iraqi oil supplies, reported OPEC News Agency.

Mussa also said Iraq's oil productive capacity could reach 6-8 million b/d in the 1990s if capital is available, Opecna reported. Prior to the Persian Gulf war, Iraq's productive capacity totaled about 3.5 million b/d, and its export capacity about 5 million b/d.

Iraqi Oil Minister Osama al-Hiti estimated Iraq's productive capacity currently at 1.1 million b/d, Opecna reported.

Al-Hiti also said repairs to Iraq's Mina al-Bakr export terminal, damaged extensively during the Persian Gulf war, has begun. The facility should be capable of loading tankers soon, he said, but full operating capacity would depend on availability of spare parts.

The minister noted Iraq's refining capability has been restored to about 80% of its precrisis level, with current throughput standing at about 400,000-450,000 b/d. There even is surplus capacity of some products, notably gas oil, fuel oil, and kerosine, that could support limited exports.

SOVIET STATUS REPORT

IEA estimates Soviet production has remained steady at about 10-10.1 million b/d, with exports of crude and products at 1.8-2 million b/d in October.

IEA projects Soviet production at 9.9 million b/d in the first quarter and 9.7 million b/d in the second.

Although some foreign companies are making a contribution to improved oil recovery in the collapsing U.S.S.R., IEA said it assumes foreign capital and technology would not have a significant effect on Soviet production until 1993-94.

In the short term, Soviet crude production is expected to be most sensitive to the internal price of the ruble as well as ruble and hard currency revenues available to producers to undertake well workovers and to purchase essential supplies of oil field equipment.

The Nov. 15 decision by the Russian government to review all existing oil export licenses had no immediate observable impact on Soviet exports from Black Sea and Baltic Sea ports

The report said the decision appeared to be an attempt to restore a degree of centralized Russian control over oil exports and accompanying hard currency revenues, when the number of existing licenses far exceeded those necessary to support current exports.

OTHER IEA CONCERNS

World crude oil production in November rose 100,000 b/d to 67.3 million b/d, IEA estimated.

OPEC production rose to 24.1 million b/d from 23.8 million b/d mainly because of increases in Libya, Nigeria, and the United Arab Emirates. IEA noted uncertainty over recent production estimates has, at times, been aggravated by inconsistent treatment of natural gas liquids by various sources.

Looking at refinery activity, IEA said October throughput in European members of the Organisation for Economic Cooperation and Development fell by 200,000 b/d and in the U.S. by 700,000 b/d, partly reflecting deteriorating margins.

Preliminary indications for November suggested higher throughput, consistent with improving margins. Japanese throughput increased 400,000 b/d in October with a further increase anticipated in November.

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