Oil companies may still hope Organization of Petroleum Exporting Countries members will cut production to revive oil prices.
That hope must be getting weaker with each day OPEC sticks to its quota levels in its bid to maintain market share (OGJ, Dec. 27, 1993, p. 29).
London's Centre for Global Energy Studies (CGES) said OPEC is unlikely to call an emergency meeting to discuss oil prices before the next scheduled gathering of ministers Mar. 25.
CGES diagnosed a deadlock: Non OPEC producers have shown little interest in Gulf Cooperation Council calls for voluntary production cuts, while major OPEC players have said they win not act unilaterally without cuts from non OPEC countries.
An understanding of why OPEC is so determined to watch and wait emerged at a conference organized by France's Ministry of Industry.
HISTORY LESSONS
Sadek Boussena, former oil minister of Algeria and now associate professor at the University of Grenoble, France, said experience has taught OPEC that recovering market share requires use of oil price control as an instrument.
He warned that excessive manipulation of either oil prices or production levels carries a risk: The result could be a substantial fall in demand or revenues.
Boussena said another lesson is that it is impossible to manage prices that are not linked to main economic trends. A fully free market, however, would carry oil prices too low.
The difficulty of reaching an internal consensus does not exclude a common pragmatic OPEC strategy, he said. But there is a threat to OPEC's market share. And history has shown the disadvantage of being a "swing" supplier.
Another option would be posting reference prices, said Boussena, but this entails public regulation responsibility and can be used as a pointer by potential competitors.
Those lessons explain the sometimes contradictory behavior of OPEC during the past few years, said Boussena, and the need to involve other producers in stabilizing the market.
Taken together, they pinpoint the difficulty OPEC has in establishing a firm strategy for the future, given its two options.
TWO OPTIONS
Boussena's "uncertainty" option involves maintaining high volume oil supplies at relatively low prices to obtain high total revenues. Medium and long term prices would be uncertain. This approach would benefit large producers.
His "predictability" option involves progressive revenue increases with no price shocks. This plan would require participation of other big players on the world market.
CGES said OPEC's current "I will if you will" stance amounts to a decision to defend market share. Saudi Arabia in particular has declared an unwillingness to resume the role of swing producer.
"Saudi willingness to maintain output despite lower oil prices is demonstrated by the recent budget statement from Riyadh," said CGES, "which proposes a 19% cut in spending for 1994.
"This implies an average price of $14/bbl for Saudi crudes and suggests Saudi Arabia is able to live with such a price level."
