Organization of Petroleum Exporting Countries ministers have agreed to maintain the group's present 24.52 million b/d oil production ceiling for the rest of 1994.
Lindsay Home, executive director, energy derivatives, Lehman Bros. Ltd., London, said the Saudi delegation put its spin on the agreement by insisting on the extension. "But if the agreement is going to last, why are OPEC ministers expecting to meet as usual in June?" he asked.
The latest agreement is the second rollover of production quotas originally decided in September 1993. Then OPEC surprised the markets by forging a deal after much backroom work to cajole maverick delegations (OGJ, Oct. 4, 1993, Newsletter).
"Members felt once more that the best they could do was continue with the rollover," an OPEC official said. "They stretched the agreement to cover the rest of the year and agreed to adopt a staunch position with regard to quota violations."
OIL PRICES SLIDE
The Mar. 26 decision in Geneva surprised nobody, but oil prices took a turn for the worse anyway. OPEC's basket crude oil price slumped to $12.92/bbl by Mar. 28, having been at $13.76 Mar. 25. Brent crude for May delivery fell $1.09 in 24 hr to $13.02/bbl at close of trading Mar. 28.
An OPEC spokesman said oil ministers had expected the market to dip a little following the meeting and are waiting for prices to recover slightly. Brent crude had rallied to $13.14/bbl by noon Mar. 29.
"Some oil traders always run for cover when they read the headlines after an OPEC meeting," said the OPEC official.
Horne attributed the dip to a combination of low oil prices before the meeting with a 1.5 million b/d surplus expectation for the second quarter.
Press reports from the meeting said OPEC members were divided over calls to cut production. Saudi Arabia wanted to hold steady rather than return to a role as OPEC's swing producer, while Iran led a group that argued lower production would spark oil prices.
As they gathered on Mar. 25, ministers received a report by the OPEC secretariat warning that sticking to current quotas would lead to further stock building and downward pressure on prices. Single figure oil prices were threatened.
OPEC PRODUCTION
The OPEC official said most group members are adhering to quotas, and this is expected to continue. OPEC's production monitoring committee is expected to meet next in June, prior to a full OPEC ministerial gathering June 15 in Vienna.
"The organization will not tolerate any violation of this agreement and will consider taking necessary measures that will ensure adherence," said OPEC's official statement after the meeting.
Horne said every OPEC member except Saudi Arabia, Kuwait, and Venezuela is producing at maximum capacity.
Middle East Economic Survey estimated OPEC production in February averaged 24.76 million b/d. Nigeria was the main overproducer, averaging 2 million b/d, or 135,000 b/d above quota.
Nigeria is thought by other OPEC members to be "weak kneed" because of government financial problems and unlikely to cut oil production.
Horne predicted oil prices will bottom out at $11.50-12.50/bbl in the near term, while a $12-15/bbl price range is likely for several years.
"Prices may stop falling toward the end of the second quarter this year," Home said. "Pundits say single figure oil prices are unlikely, but a $15-16/bbl price range is not achievable either."
