The first cracks in the facade of OPEC unity have appeared in the run- up to the ministerial conference that opens in Bali on 21 November. An apparent consensus among Gulf states for a six-month extension of the current production ceiling has been broken by Iran which is calling for a three-month roll-over.
This shorter agreement would leave room for a cut in production during the second quarter of 1995 when demand is likely to slacken with the arrival of spring. Iran is understood to have received little or no support for this proposal.
Prices have firmed in recent weeks and continued OPEC production at around the present 25 million barrels a day (b/d) is expected to lead to higher prices. Analysts agree that higher prices rather than higher production is the shared goal of the leading OPEC states.
Saudi Arabia, in particular, has a vested interest is seeing prices strengthen due to financial pressures, according to the latest monthly report from the London-based Centre for Global Energy Studies (CGES). The centre expects OPEC to settle for a six-month extension of the 24.52 million b/d quota. It says that a shorter period would send the wrong signal to a market already trying to assess the implications of Iraq’s formal recognition of Kuwait’s borders.
A longer period would send the opposite signal, forcing prices steeply upwards to $25 a barrel by the fourth quarter of 1995, CGES argues. Such high prices would be inimical to the long-term interests of Saudi Arabia, OPEC’s largest producer, the report says.
CGES bases its assessment on the conviction that prices are stronger now because of an increasing shortage of residual crudes. Demand for OPEC oil has increased by 400,000 b/d this year and is due to rise by a further 800,000 b/d in 1995. ‘The market needs more oil from OPEC – it is as simple as that,’ the report says.
The other outstanding issue facing OPEC in Bali is the selection of a new secretary-general to replace Doctor Subroto of Indonesia who stepped down in June. His post has been filled temporarily by Libyan Energy Minister Abdullah Salem al-Badri. Prime candidates to succeed Subroto are Alirio Parra of Venezuela and Rilwanu Lukman of Nigeria. Both have previously served as OPEC president. Iran has been holding out for its own candidate, former commerce minister Hossein Kazempour-Ardebili, who is Iran’s present representative on the OPEC board of governors.