Leading ministers in the Organization of Petroleum Exporting countries spoke out yesterday in favor of a freeze on prices when the oil cartel meets later this month in Geneva. OPEC's current president said he thought such a step is likely.
Against a backdrop of a continuing glut on the world oil market and a precipitous drop in so-called spot, or open-market, prices, Oil Minister Mana Said Oteiba of the United Arab Emirates urged fellow members of OPEC to hold the line at current prices but to oppose pressure for a price cut.
Oteiba appeared to be reacting to reports that the Saudi oil minister, Sheik Ahmed Zaki Yamani, favors a price rollback given current market conditions, something Yamani vehemently denied yesterday as Arab states gathered in Kuwait for a meeting of their own oil association.
Oteiba told reuter news agency in an interview "that we should freeze the prices of oil as they are for some time. A freeze should be for everyone because it is not justifiable to ask anyone to reduce his price."
Oteiba said the freeze should last until demand for oil absorbs the present surplus, which is widely believed to be running about 2 million barrels a day.
Qatar Oil Minister Abdul Aziz Khalifa al-Thani echoed Oteiba's call for a freeze and in Jakarata, Indonesian Mining and Energy Minister Subroto, the current OPEC president, said the Geneva meeting scheduled for May 25 probably would favor keeping prices unchanged in the hope that major producers like Saudi Arabia would voluntary lower production.
Prospects for a production cut were clouded, however, by Venezuelan Oil Minister Humberto Calderon Berti, who told Washington Post special correspondent Marlise Simons in an interview yesterday that he would oppose any efforts within OPEC to create an artificial oil shortage to drive up prices, a point made a number of times in recent weeks by Yamani.
OPEC prices currently fall in a range from the $32 for a 42-gallon barrel charged by the Saudis to the $41 charged by Libya, with Nigeria and Algeria not far behind at $40 a barrel. With the Saudis continuing production in excess of 10 million barrels a day, almost half the total OPEC production, there has been tremendous downward pressure on prices in recent months.
That pressure is most vividly reflected in the spot of oil change hands outside of long-term contracts. Prices on the New York and Rotterdam markets have fallen sharply in recent months, from a high of $40 for Arabian light crude in mid-November, to between $34 and $35 in recent trading, according to knowledgeable officials.
The unusually sharp decline, generally to a point well below top-priced OPEC oil, puts countries such as Nigeria and Algeria, which have little slack between oil revenue and income needs to fuel ambitious development plans, in the position of finding their official price well above the going open-market rate.
Libya, Algeria and Nigeria have been among the price "hawks" within OPEC, and Libyan Oil Minister Abdel Salam Zagar said yesterday in Kuwait that the "OPEC-decreed price ceiling is too low, much lower than the cost of alternative energy sources."
Before the last OPEC price-setting session in Bali, Indonesia, last December, spot-market prices generally were on the upswing as the war between Iran and Iraq raised fears of a long-term shortage.
Since the, Iran and Iraq have managed to resume exports, albeit at a level well below their prewar output, and worldwide demand has been far lower than predicted by many experts as economies in the industrialized countries adjust to the new age of high oil prices with conservation measures. Added to this is lower general demand resulting from continuing economic downturns in industrialized countries.
The combination of all these factors has strengthened the hand of Saudi Oil Minister Yamani who has long pressed for a long-term policy by OPEC that would establish a uniform price for oil linked to a complex economic formula that would include a worldwide inflation factor.
In a widely publicized statement on NBC's "Meet The Press" last month, Yamani said Saudi Arabia had engineered the current oil surplus and would not cut production or change its price until other oil-producing countries "come down on their prices."
Yamani said yesterday in Kuwait that this statement had been widely misinterpreted as a call for short-term price reductions while he really was referring to his campaign for a long-term formula.
"This is the fifth time I deny this," Yamani reportedly said somewhat angrily, apparently reflecting the sharp criticism he has received from other oil ministers for his original comment.