Key oil ministers of the Organization of Petroleum Exporting Countries agreed yesterday to lower the group's ceiling on crude oil production, but not its prices, in a new attempt to stem the worldwide glut that has sharply undercut the price of petroleum.
At the same time, Saudi Arabia, OPEC's largest oil producer, announced that it already has implemented a drop of 1 million barrels per day in its production ceiling--its second in four months--and called on its OPEC partners to hold to the group's $34-a-barrel benchmark price, Reuter reported from Qatar, where the ministers met.
U.S. oil experts said the new production cuts, if adhered to by OPEC's 13 members, could help dry up the oil surplus, which some estimate at more than 2 million barrels a day. They say the result would be stabilization of crude prices and an end to recent decreases in gasoline prices at the pump.
"If they're really willing to cut the quantity, there's no theoretical reason why they can't hold the price at $34," said Theodore Eck, chief economist of Standard Oil of Indiana. Eck said the OPEC measures could make a difference of "as much as 10 cents a gallon" this year in retail gasoline prices.
But Eck and other experts cautioned that pressures on individual OPEC members and on non-OPEC oil-producing nations to undercut the benchmark price remain intense. "They realize they're on the abyss, that if they don't hang together the cartel will dissolve," said Milton Russell, economist for Resources for the Future.
Reuter reported that the oil ministers agreed to lower OPEC's daily production ceiling from its present 20 million barrels to 18.5 million. Following the agreement, OPEC's president, United Arab Emirates Oil Minister Mana Said Oteiba, announced that the organization would hold an emergency session in Vienna March 19 to approve the agreement formally.
Crude oil prices have been dropping steadily over the last year, benefiting U.S. consumers but harming countries that rely heavily on oil exports for revenues. The average price of crude produced in non-OPEC countries fell from $38.54 a barrel in January 1981 to $33.79 last week.
Britain last week announced the latest cut, taking $4 off the price of its North Sea crude, to $31 a barrel. The decrease, Britain's second reduction since Feb. 8, is believed to have triggered the decision of the oil ministers to meet yesterday.
Even the OPEC countries, which supply just less than half the world's output, have begun to undercut the organization's price. Iran, which is desperate for funds to wage its war against Iraq, reportedly has cut prices three times in recent weeks, for a total reduction of $4 a barrel.
The results have begun to show up at the pump in recent months. John Flint, a spokesman for Mobil Oil, said yesterday that his company's gasoline prices, which have dropped about 3 cents per gallon during the last three months, would fall as much as 4 cents more this month due to decreases the company announced last week.
A Saudi communique issued yesterday in Riyadh called for OPEC patience in what it said would prove to be a temporary crisis, Reuter reported. The communique added that if members did not resist the temptation to make unilateral discounts, the entire OPEC pricing system would collapse.
Reuter said the communique blamed the glut on OPEC militants who made unrestrained price increases in the tight market of 1979. It said the Saudis warned them then that they would seriously weaken worldwide demand and cause a glut, but were labeled reactionaries by the militants.
U.S. analysts agreed that lowering the production ceiling would not of itself cause a major decrease in world supply because most OPEC countries already are producing less than the ceiling allows. But they said the action still could make a critical difference in stemming the price-cut psychology that currently dominates the market.
"It's a question of expectations," said economist Russell. "If the Saudis can generate the expectation that oil prices will indeed stick at $34, then they may well succeed."
Some analysts, contending that the present glut spells the end of OPEC'S effectiveness as a cartel, have predicted that U.S. gasoline prices could continue to drop dramatically, to perhaps as low as $1 a gallon. But Reuter reported that OPEC President Oteiba warned reporters yesterday that "any observers who are expecting that prices will go down will find they have made a complete mistake."
Iraqi Oil Minister Tayeh Abdul-Karim said the production ceiling would be lowered even further if circumstances require it, Reuter reported. "We will go down as far as the market," he said.