Internal disagreements within the Organization of Petroleum Exporting Countries about oil production levels have created confusion in world oil markets that is driving petroleum prices down despite the tensions in the Persian Gulf, oil traders and analysts said yesterday.
Despite protestations to the contrary from OPEC officials, experts believe that the oil cartel's members are producing as much as 20 million barrels of oil daily, more than 3 million barrels over OPEC's production quota and enough to create a price-eroding glut.
Yesterday, OPEC announced that its president, Nigeria's Rilwanu Lukman, and oil ministers from Indonesia and Venezuela will meet in Vienna later this week to discuss the production situation and the resulting price slide, and might visit Iraq and other OPEC nations believed to be contributing to the problem by producing more oil than allowed under OPEC quotas.
Oil prices have dropped about $3 a barrel over the past two weeks to their lowest levels in four months. Prices firmed slightly yesterday: the price of a barrel of crude oil for October delivery on the New York Mercantile Exchange rose 4 cents to $18.64 after a 30 cent drop Monday.
Prices have been driven to a peak of $22.76 a barrel in recent weeks by fears that Iran would make good on its threat to disrupt oil shipments from the Persian Gulf through the Strait of Hormuz. But as those fears abated, they were replaced by speculation about OPEC's high production levels.
"The perceptions of oversupply, I think, are overwhelming any fears that had been in the market about the Persian Gulf," said Peter Beutel, an oil trader for Elders Futures Inc. in New York.
"They're putting a lot more weight in that than in the fact that I think there's still tensions in the Persian Gulf," said Richard Browning, an economist at Phillips Petroleum Co.
"I've been surprised at how quickly the market has accepted as truth these overproduction numbers when in fact we just read this morning that there's been some tension in the strait," Browning said.
OPEC has set a production quota of 16.6 million barrels a day. But in recent weeks, the 13 OPEC nations have been producing an average of between 19 million and 20 million barrels a day, according to various industry estimates.
"No one really knows what OPEC is producing," said Rosario Ilacqua, an oil industry analyst at Nikko Securities Inc. in New York. "Doubtless, OPEC production is well above that self-imposed quota of 16.6 million barrels a day, and you have to look for some restraint."
The excess is coming from a handful of OPEC members -- believed by industry analysts to include Iran, Kuwait, Qatar and Abu Dhabi, in addition to Iraq -- that are producing beyond quota levels for various internal and political reasons. Ironically, Iran has been one of the most vociferous complainers about overproduction by other members, but western oil industry observers believe Iran has been exceeding its production quota in recent weeks in an effort to take advantage of a lull in attacks on Iranian shipping by Iraqi forces in the seven-year war between the two nations.
Lukman, at a press conference in Lagos yesterday, insisted that OPEC production was running no higher than 17.8 million barrels a day. "The figures are false," he said. "It is not possible for us to overproduce by 3 million barrels a day." But experts dismissed those statements as posturing and said OPEC is indeed overproducing at that rate.
Still, traders and analysts said they were encouraged by the planned mission by the three OPEC ministers to attempt to get overproducing nations to hold down their output, and by a scheduled meeting next month of a five-nation OPEC pricing committee, which also is expected to push for lower production levels.
"The market may respond to this announcement of the meeting on Sept. 7 of the OPEC ministers committee of five, which probably is considered from the market's point of view as a positive step in trying to halt the price decline," said John Lichtblau, executive director of the Petroleum Industry Research Foundation, a New York analysis group. "It shows that there is a concern with the overproduction."
OPEC will have to get production down, experts say, to keep the market from falling below the cartel's benchmark price of $18 a barrel, and to support a widely expected increase to $20 a barrel in December. But some OPEC members opposed that increase, and at least one, Kuwait, is said to be overproducing to weaken prices and thus prevent the increase.
Until there is some action by OPEC, analysts expect prices to stabilize in coming days.
"I don't think people are willing to pressure the market below $18 now or in the next two weeks until they see what OPEC is going to do," said Michael Rothman, senior energy analyst at Merrill Lynch Capital Markets in New York.
But experts also warn that a flare-up in the Persian Gulf could send prices soaring again. "It's still very much a function of what does or does not happen in the Persian Gulf," Lichtblau said. "If you see a major confrontation or a major incident, the price will move up again.