CLAIMS that the deal was unique, mould-breaking, real rather than flippant were just some of the words chosen by OPEC oil ministers as they tried to put a positive spin on their latest attempt to prop up sagging prices. Oil markets were not so sure and will take some convincing that the proposed cuts can be delivered.

The deal struck in Vienna on 30 March commits OPEC to reduce oil output by 1.245 million barrels a day (b/d) as its contribution to an orchestrated campaign to cut global supplies of 75 million b/d by 2 per cent. The agreement, reached after 11 hours of closed talks, confirms the cuts envisaged in the Riyadh pact on 22 March (Cover Story, MEED 3:4:98).

It caps several weeks of frantic efforts to restore OPEC discipline and draw non-OPEC producers into an extended cartel arrangement. Mexico and Norway are the two biggest non-OPEC producers joining in, with cuts of 100,000 b/d each, lifting the grand total of planned reductions to just over 1.5 million b/d.

In spite of the stirring talk in Vienna, the response to the agreement was almost uniformly sceptical. After so many lapses in the past, OPEC agreements retain little credibility. Most analysts fear that the cuts are not deep enough to remove the supply overhang but are prepared to suspend final judgement and wait to see if OPEC and its new allies can deliver. Oil traders were less indulgent and marked prices down as the Vienna meeting broke up on 31 March, although prices rallied on 1 April.

The fear is that OPEC has done too little, too late to influence the fundamentals. A lethal mixture of collapsing Asian demand, a mild winter in the northern hemisphere, an unseasonal stockbuild in the industrialised countries and continuing increments in non-OPEC supply has punctured the price bubble of 1996-97, when Brent soared to a peak $25 a barrel.

'The market overall in the second quarter in our calculations is going to be very amply oversupplied even if this cut takes place,' said Peter Priddle, the executive director of the International Energy Agency in Paris. 'If the deal sticks, it will take a significant amount of production off the market but not the whole of the surplus ..... there will tend to be a [price] drift down again because there is still more oil available than the market is demanding.'

Whether it was bad judgement or unfortunate timing OPEC spurred the downward spiral with its December decision to raise the official production ceiling by nearly 10 per cent. At the time most analysts reckoned actual OPEC supplies to be about 2 million b/d above what was justified by demand. Prices responded accordingly, declining inexorably towards their mid-March low of $12 a barrel for Brent and just $9.13 a barrel for Arab light (see page 22).

Although OPEC members were moved to action by the fiscal pain of reduced oil revenues production cuts could soon seem counter-productive unless prices bounce back dramatically. If a convincing cutback cannot be delivered and discipline breaks down, there is a real threat of a competitive free- for-all. As they enjoy marginal production costs of $2- 4 a barrel, OPEC producers in the Gulf would have no interest in shutting in production if they were simultaneously giving away market share.

Analysts who regard OPEC as a hangover from the past believe its days as a price arbiter are over and that this latest attempt to lift prices is bound to fail. One reason they are sure of their argument is OPEC's reduced share of global oil output, which is down to about a third from 50 per cent during its heyday in the 1970s. The deal steps around the vexed question of quotas and market share and needs non-OPEC associates for even the muted welcome it has received.

OPEC's critics believe it is simply attempting to ward off a free market in oil which would be the best way of determining its true value. Indeed, they argue that low prices actually favour the low-cost Arab producers who constitute OPEC's hard core by forcing the closure of high-cost production elsewhere. The weeks to come will tell whether OPEC has seen off the critics and can turn prices around or whether the OPEC obituary writers will be back in business again.