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OPEC's Failure to Agree on Cuts in Output Could Push Prices Lower

March 28, 1994|From Bloomberg Business News

GENEVA — International oil prices are poised to drop after OPEC ministers gave in to Saudi demands that the current oil production ceiling be extended until the end of the year.

After two days of talks, the Organization of Petroleum Exporting Countries on Saturday failed to hammer out an agreement to cut output, electing instead to hold the ceiling at 24.52 million barrels a day. OPEC produces 40% of the world's supply.

Since that quota was set in September, oil prices have slumped about 20%. A senior OPEC official warned that oil prices may slide further, to single digits, if member states don't strictly adhere to the limit.

"Everybody sees the danger if we don't follow the script," the senior official said. "A single-digit price is not excluded."

West Texas Intermediate, the U.S. crude benchmark, for May delivery on the New York Mercantile Exchange, settled at $15.13 a barrel on Friday.

Analysts were divided over the outlook for prices, although few were as skeptical as the OPEC official.

"It means OPEC is not prepared to defend the price of oil," said Mike Rothman, senior energy analyst for Merrill Lynch Commodity Research Unit.

Arthur Tower, research manager with New Orleans-based Howard, Weil, Labouisse, Friedrichs Inc. agreed. "The (U.S.) market may trade off $1 or $2. I can't see how you can say this agreement is good."

Other analysts said prices will be steady since the decision was in line with expectations.

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