GENEVA — The Organization of Petroleum Exporting Countries appeared near agreement Friday on a plan to reduce oil production by about 5%, a modest cutback that would nudge oil prices close to the cartel's desired $18 per barrel.
OPEC delegates meeting here said they hammered out a detailed proposal in two lengthy sessions on Friday. If approved by the various governments, the agreement could be reached as early as today, to take effect Jan. 1.
The mere news that OPEC might act served to push up prices of oil for future delivery a second straight day. On the New York Mercantile Exchange, contracts for January delivery of the key U.S. crude oil closed at $16.10 a barrel, up 60 cents after gaining 37 cents on Thursday.
The petroleum ministers remained silent about the details, but the plan is thought to call for a fixed average price of $18 for several grades of OPEC crude oil. The group has been in agreement on a goal of $18, but it has been highly uncertain that all the members would agree to cut production to support such a price.
An agreement after just a few days of talks to cut production by 5% would be a sign that OPEC can still act in concert, but analysts said it would not necessarily lead to a sustainable $18-a-barrel price. A 10% cut, which is also under consideration but is given less chance of approval, could drive prices to the $20 range.
Iraqi Obstacle to Deal
Despite the apparent momentum toward agreement, the organization still must resolve a dispute over Iraq's contribution to overall production. And analysts said OPEC might have to make further cuts in 1987 just to prevent price declines when seasonal demand peaks in February. Additional downward pressure on prices will come as oil companies begin selling their huge inventories when they believe prices have peaked.
OPEC's president, Rilwanu Lukman of Nigeria, confirmed that a concrete plan to cut production was on the table, and Oil Minister Mana Said Oteiba of the United Arab Emirates said the organization was "almost" finished with its work. Oteiba predicted that an accord will be reached today.
As if to persuade onlookers of a newly achieved unity within the fractious cartel, the two most powerful members, who had staked out opposing positions--Iranian Oil Minister Gholamreza Aghazadeh and the acting Saudi oil minister, Hisam Nazer--emerged from Friday evening's meeting together laughing and joking in front of a horde of reporters and camera crew members. They had nothing to say about progress, however.
OPEC's ministers convened Thursday to find a way to boost prices before a temporary production quota of about 17 million barrels a day expires Dec. 31. That quota was established in August in a successful move by OPEC to halt a dramatic collapse in prices caused by the Saudis' flooding of the market, which had seen the value of a barrel of crude oil plummet to $10 from about $30 in eight months' time.
Prices quickly recovered to $15, but that was far less than the OPEC member nations, as well as thousands of oil companies around the world, had become accustomed to. A long, acrimonious OPEC meeting in October led only to an extension of the August quotas.
Less Severe Reductions
If agreed to now, a cut of 5%--or 850,000 barrels of oil per day--would be considerably smaller than the reduction of roughly 4 million barrels declared last summer.
Cuts of 5% and 10% from current levels have been proposed, Lukman indicated. Iran has reportedly proposed the 10% reduction, but Saudi Arabia, whose initial refusal to cut oil output at all threatened to doom the negotiations, is said to be insisting on 5%. That is agreeable to541684321Research Associates.
"The Saudis are willing to cut back 5% if all the others cut by 5% and if the price is fixed at $18," Stanislaw said from his Paris consulting office, attributing his information directly to OPEC delegates. "Any cutback is agreeable to Iran. The 10% was just a negotiating point."
Still unresolved is Iran's insistence that Iraq--with which it has been at war for six years--agree to the same quotas as everyone else. Under the current, temporary quotas, Iran, desperate to shore up oil prices to finance its war, agreed to exempt an insistent Iraq.
Stanislaw said the leverage to force Iraq to cut production along with everyone else lies with the Saudis, who have ultimate control over a critical Iraqi oil pipeline to Turkey that passes through Saudi Arabia.