OPEC ministers ran into a deadlock tonight during a tense meeting called to save their fragmented agreement on production controls, reached just three months ago, from breaking apart altogether.
Iran's refusal to abide by the accord and instead to produce well over the quota assigned to it in March presented the cartel's greatest problem.
African producers of high-quality crudes were also reported to be exceeding their quotas and resisting an effort led by Saudi Arabia to impose price increases on their production.
The cheating on the earlier accord threatened to split the 13-member Organization of Petroleum Exporting Countries, now responsible for 35 percent of the world's oil exports, and raise the risk of a new oil glut and wild discounting that would push world oil prices down.
An attempt today by a special committee of experts to recommend compromise solutions failed to break the impasse, leaving "still some gap that has to be overcome," Indonesian Energy Minister Subroto told reporters.
After a long day of talks, the ministers adjourned until Saturday, with the prospects of eventual agreement uncertain. Passing through the lobby tonight of the Vienna hotel where the OPEC officials are meeting, Venezuelan Oil Minister Humberto Calderon Berti said, "I think conditions are very good" for a solution. He added, "Everyone realizes that we need to reach agreement, even the Iranians."
But other officials sounded less optimistic that the cartel will be able to regain hold of the oil market. The picture of renewed conflict, distress and disarray contrasted with the image of unity and satisfaction just seven weeks ago at the OPEC ministerial conference in Ecuador.
There, the ministers were congratulating themselves on having halted a year-long slide in spot-market oil prices as a result of having accepted the production quotas in March--the first in the 21-year history of OPEC.
The oil market had indeed tightened following the accord but not, it now appears, as quickly as the cartel had expected.
"Market indicators have shown that a balance between supply and demand has continued to deteriorate since May , and a condition of oversupply still exists," Ecuadoran Energy Minister Eduardo Ortega Gomez, OPEC's current president, said in an opening statement.
Oil ministers have acknowledged that the cartel's total production has topped the fixed ceiling of 17.5 million barrels daily and is now running at about 18.2 million. This is blamed on production above mandated limits by Iran, Libya and Nigeria, each recovering from periods of low production.
Iran's production had suffered because of revolutionary chaos at home and the strains of war with Iraq. Libya and Nigeria lost substantial oil sales during the oil glut because of their high prices at the time.
A majority of ministers are said to favor keeping the current ceiling on collective production to avoid downward pressure on the reference price of $34 per barrel of oil. When the ceiling was set in March, its aim was to defend the $34 price.
OPEC's four-nation market monitoring committee recommended to today's extraordinary session that the ceiling be maintained, arguing that world demand for oil is still too weak to permit an increase in the cartel's production. But serious thought is reportedly being given to readjusting some national quotas within the collective ceiling.
The problem here, as Venezuela's Calderon Berti acknowledged to reporters, is that no OPEC country wants to accept a cut in production under a new quota arrangement. The Venezuelan oil minister said only two countries are producing somewhat below their assigned quotas--Iraq, as a result of its war with Iran and Syria's blockade of a key pipeline, and Saudi Arabia. Both these countries are hardly inclined to make concessions to Iran.
But Calderon Berti said the agreement can work only if Iran's overproduction--which he said is 1 million above its 1.2 million barrels-per-day quota--is officially recognized and accommodated. Venezuela, a leading OPEC moderate, has threatened to drop out of the agreement and raise its own production if other members fail to respect their quotas.
To constrain production by Libya and Nigeria, Saudi Arabia wants a doubling of the current $1.50 differential that these African states charge on their high-quality oil. It is expected this would help divert buyers to other customers.
The Saudi delegation was reported by other conference sources to have lodged a strong plea for the cartel to settle its differences. Saudi officials were said to have complained that the cheating on the production agreement was depressing Riyadh's own oil sales.
Absent from today's meeting, though, was Saudi Oil Minister Sheik Ahmed Zaki Yamani, who has remained in the desert kingdom ostensibly to observe the Ramadan holiday. This is regarded, however, by some conference participants as a convenient excuse by Yamani to avoid being subjected to pressure here to cut back Saudi production in support of the current collective ceiling, as well as to avoid a verbal fight with Iran as happened at the Ecuador meeting in May.