OPEC is to stick with its current output ceiling for a full year to the end of 1995 in an attempt to raise oil prices. The 12 members agreed to the proposal, first suggested by Saudi Arabia, at a two-day conference in Bali that ended on 22 November. OPEC also chose Nigeria’s Rilwanu Lukman as its new secretary-general.
The 12-month output freeze was adopted unanimously although dissent was expressed earlier by ministers from Kuwait, Libya and Gabon. They would have preferred a six-month extension of the 24.52 million barrels a day (b/d) ceiling. Iran supported the full-year freeze proposed by Saudi Arabian Petroleum & Natural Resources Minister Hisham Nazer and other delegations eventually followed suit. Actual OPEC output is running at about 25 million b/d.
The clear intention is to increase oil prices as demand rises through the winter months and sustain the higher prices as the economic recovery lifts world demand in the second half of next year. There is plenty of ground to make up before OPEC reaches its target price of $21 a barrel; the OPEC basket price averaged $15.36 a barrel in October.
‘OPEC wants to reduce speculation about itself in the market,’ says Mehdi Varzi, an analyst with Kleinwort Benson in London. ‘It should persuade holders of stocks not to reduce their inventories,’ Varzi adds. Prices have firmed in response to the decision. The benchmark Brent crude oil was trading at $15.90 a barrel on 23 November.
However, there are still several uncertainties that could influence the call on OPEC supplies. Varzi expects OPEC to capture about half the 800,000- 1 million b/d increase in demand that is expected next year but this cannot be guaranteed due to the rise of non-OPEC production.
In 1995, Norway and the UK will lift North Sea production to record levels and output will also become available from new developments in Angola, Brazil, Columbia and the Far East.
‘The small additions make a big contribution once you put them all together,’ says Varzi. ‘Speculation about Iraq is also inevitable. It wants those sanctions ended. Even if it doesn’t come in, the speculation could provide a depressive effect.’ Kleinwort Benson still projects an average price for Brent of $17 a barrel in 1995.
OPEC’s other business in Bali, to appoint a successor to Indonesia’s Dr Subroto as secretary-general, passed off smoothly after the candidates of Iran and Venezuela withdrew in favour of former Nigerian oil minister Lukman. It had been feared that Iran’s insistence on its nominee would prevent such a speedy, unanimous appointment.