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Oil Cartel in Disarray as Meeting Ends

Energy: OPEC members fail to agree on new production limits as sliding prices threaten a meltdown in their markets.

November 27, 1998|From Times Wire Services

VIENNA — Turning their backs on a crippling price crash, OPEC oil producers Thursday failed to agree on new supply limits to ease the world's huge petroleum glut.

Ministers of the Organization of Petroleum Exporting Countries, after two days of stormy talks, could only agree to meet again in March, abandoning plans even to extend existing output curbs in place since June.

"In March, we will decide what to do," OPEC Secretary-General Rilwanu Lukman told reporters.

OPEC ministers left Vienna as Exxon Corp., the biggest and most profitable U.S. oil company, was reportedly in talks to acquire rival Mobil Corp. Some observers called the potential merger the latest sign that the industry sees consolidation as the only way to keep profits rising.

Big Oil and OPEC are responding to the changing economics of the industry. Recessions in major energy-consuming economies such as Japan and South Korea have cut growth in demand to its lowest pace since 1993. And access to new resources in places such as Azerbaijan, Kazakhstan and Venezuela--which were closed to oil companies at the beginning of this decade--could add to the glut.

At $10.98 a barrel in London, benchmark Brent crude oil is near its lowest price ever and less than half last year's peak price of $24.91. Crude oil trading in New York was closed for the Thanksgiving holiday and won't reopen until late Sunday. In the Persian Gulf, Arab light, Saudi Arabia's main export grade, was just $8.25 a barrel.

Analysts predicted oil prices would go lower still.

"This has knocked the bottom out of the market. I have this horrible feeling we could be getting into single-digit prices for a while," said Mehdi Varzi of the investment firm Dresdner Kleinwort Benson.

Calls from a majority of OPEC's ranks for immediate production cuts foundered among the fractious cartel's biggest producers over the vexing issue of adherence to supply limits.

Saudi Arabia said it opposed any further reductions because some OPEC members were pumping more than permitted under the deal struck in June, which included producers from outside the cartel.

Riyadh has become increasingly concerned that Venezuela's fast-growing oil output, fed by foreign investment in recent years, would force it out of the giant U.S. market.

"Saudi seems to have decided that lower prices are better than losing market share," said Nauman Barakat of Prudential Securities in New York.

Iranian Oil Minister Bijan Zanganeh told reporters he saw the need for OPEC to slice another 1.5 million barrels per day at the March 23 meeting.

But Iran on Thursday also was insisting that the baseline for its own output cuts be raised to higher levels--a bad omen for the March meeting.

OPEC's inability to address one of the worst slumps in its history has left depressed oil markets threatening meltdown.

"The market has nothing to hope for now other than a very cold winter," said Leo Drollas, an oil expert in London.

* MERGER IMPACT: An Exxon-Mobil merger might be more a boon to consumers than a threat. A1

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