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Kuwait Moves Into Saudis' Role of Being Key to OPEC Oil Prices

June 22, 1989|From Reuters

LONDON — Kuwait seems to have strayed accidentally into the uncomfortable position, recently vacated by Saudi Arabia, of being OPEC's "swing" producer, meaning the price of oil largely depends on the volume of crude it sells.

But reports on Kuwait's sales intentions for the next few months are conflicting.

The gulf nation is in the spotlight because it has opted out of a supply quota system used by the 13-member Organization of Petroleum Exporting Countries to support prices.

Kuwaiti oil minister Sheik Ali al Khalifa al Sabah wants a bigger quota than the Saudi-led majority within OPEC would award him at a meeting that ended in Vienna on June 7.

But Sheik Ali later pledged that he would still help OPEC by reducing the country's output "to or very near" 1.35 million barrels daily, compared to the estimated 2 million barrels a day Kuwait pumps now.

Others in OPEC, such as the United Arab Emirates, also are producing beyond their quotas, but market analysts say Kuwait's high profile now probably makes it the key to prices.

North Sea Brent Blend crude oil, a world marker, already has slipped about $1.50 to just under $16.50 a barrel since early June on fears of excess OPEC supply.

But if Kuwait abides by its pledge of restraint, total OPEC output may decline a little after July 1 when the new deal takes effect, says the group's secretary-general, Subroto of Indonesia.

"We have heard in a very clear voice . . . that Kuwait will use its freedom of production responsibly," Subroto said in a speech in Reno, Nev., this week.

If Kuwait does not cut output, however, traders say a jittery market will be prey to fears that Saudi Arabia and others might join in the quota-busting.

"The market is very likely to take a wait-and-see attitude until the beginning of July to assess the level of Kuwait's production," said Nauman Barakat, a vice president with Prudential-Bache Securities.

"Early indications are that Kuwait spot sales have been reduced," Barakat said. "Whether they will be lowered to 1.35 million barrels per day is, of course, the all-important question."

Petroleum Intelligence Weekly, a New York industry newsletter, has reported that the Kuwaitis kept up a sales blitz on U.S. customers after the OPEC conference.

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