Saturday, November 28, 1998

OPEC ministers depart Vienna after low-key meeting

By DIDI KIRSTEN TATLOW

Associated Press

VIENNA, Austria -- OPEC oil ministers have adjourned their testy year-end meeting after failing to agree on measures to halt a slide in world oil prices.

With prices hovering near a 12-year low, analysts predicted before the meeting that the Organization of Petroleum Exporting Countries would extend the cuts until the end of next year.

Instead, it decided to review the situation in March at the cartel's next scheduled summit, secretary-general Rilwanu Lukman said Thursday at the conclusion of the year-end meeting.

"We have already got an agreement," Lukman said in an apparent effort to ease disappointment that OPEC had failed to take action.

In London, January Brent futures have risen the past two days, gaining 16 cents Friday to $11.16. The price rose 10 cents Thursday.

In an effort to boost prices, OPEC agreed in June to slash its daily production quota by 2.6 million barrels a day, to 24.3 million barrels. The market has barely responded, due to an oil glut, excessive stocks, low demand and overproduction by some members of the organization.

OPEC is partly to blame for the slump. It decided last winter to increase production, feeding Asia's economic turmoil and reducing demand there and elsewhere.

The resulting oil glut has dropped OPEC's average oil price to just more than $10 from more than $18 last November, hammering OPEC's oil-dependent economies.

At this week's meeting, Saudi Arabia criticized Venezuela and Iran for overproduction.

Teheran, OPEC's second-biggest producer, denied the allegation and said the bulk of fresh cuts should be made by Saudi Arabia, OPEC's biggest producer.

Members complain that Saudi Arabia seized market share after Iraq's departure from the oil market in 1990, and now won't let go.

The kingdom says there is no point to further cuts until full compliance with June's round is achieved.

Iraq has been barred from exporting crude since its 1990 invasion of fellow OPEC member, Kuwait. It is only allowed to sell limited amounts of oil under U.N. supervision to purchase food and other humanitarian goods.

The lack of agreement at the meeting raised questions about OPEC's future, said Mehdi Varzi, director of research at Dresdner Kleinwort Benson.

Varzi predicted continuing low oil prices will trigger privatization in OPEC's quota-oriented, state-controlled oil industries, with governments keen to shed costly state subsidies as prices slump.

"OPEC has become a backwater, because it is not looking at fundamental things," such as better technology which has made it cheaper and quicker to produce oil, narrowing profit margins, Varzi said.

Others were more upbeat.

"If it's a weak winter they have the opportunity in March to do something. That's the positive side." said Leo Drollas, chief economist at London's Center for Global Energy Studies.

"On the negative side, markets expected cuts to be extended and they haven't got that," said Drollas.

Algerian oil minister Youcef Yousfi was elected as the cartel's new president, replacing outgoing president Obaid bin Saif Al-Nasseri.

OPEC members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.