OPEC's previous production and pricing agreement effectively collapsed last night when oil ministers failed to decide how to manage cheating by some members on existing rules.
After two days of intense and often quarrelsome discussions, the ministers issued a communique announcing that they were suspending their deliberations "until further notice."
Marc Nan Nguema, the organization's secretary general, told reporters at a midnight news conference that all major elements of OPEC's production and pricing system--except for the commitment to maintain a $34 per barrel reference price--would come "under study," meaning that the rules were no longer in effect.
The failure to reach a decision by the 13 members of the Organization of Petroleum Exporting Countries raised the risk of a free-for-all among the oil exporters that could lead to a new oil glut and fiercely competitive price discounting.
Nguema said that a new set of rules for OPEC--covering individual output quotas, the total collective ceiling on production and price differentials for the various nations' crude oil--would have to wait until ministers agreed to meet again and try to reach a new consensus.
A senior OPEC official acknowledged that the cartel's existing pricing structure had "proved maybe not to be so effective as people had thought" in strengthening the demand for oil and disciplining OPEC.
Differences over how much crude oil, and at what price, the current market could bear have already encouraged some OPEC members to start producing beyond quotas set just three months ago. The cartel then fixed an overall output ceiling of 17.5 million barrels per day. That decision marked the first time in OPEC's 21-year history that members formally agreed on a quota plan. It was taken at the time as a reaffirmation of OPEC's unity and its continued survival.
The deadlock now indicated that the problems of managing a world market with reduced demand for oil is proving more difficult than members had thought. Nguema acknowledged as much when he told reporters: "We have a very difficult situation. We need more time for study."
Asked whether the organization was in disarray, Nguema said, "Maybe this is true."
The senior OPEC official added that the cartel may have misjudged the quickness and degree to which demand for oil would strengthen following the March decision to limit production. "What is happening now in the market may be something of a structural matter" whereas OPEC may have been acting as though the decline in demand were only due to a softening in the economy, Nguema said.
The meeting reviewed both production and pricing in a strained effort to shape a package that would maintain the basic $34 per barrel for OPEC oil while accommodating increased production by some members.
Deputy Saudi Oil Minister Abdul Aziz Turki was vague about his country's future oil policy, saying, ". . . We have Arabian light crude which Saudi Arabia is free to protect as it deems necessary. Now the price is $34. It probably will remain so. I don't know."
A majority of ministers remained opposed to raising the organization's production ceiling of 17.5 million barrels per day.
Iran, which reemerged here as an influential OPEC member and at the same time the biggest threat to the cartel's old quota system, gave no sign of willingness to trim its production from a level said to be nearly double its assigned quota of 1.2 million barrels per day. Iranian Oil Minister Mohammed Gharazi told reporters he had asked that a new quota be set for his country at 3 million barrels per day.
Iran's aim was clearly to pressure Saudi Arabia to cut production, in what looked like the start of a campaign to erode the enormous power the Saudis have wielded in OPEC.
Saudi production is already running about 500,000 barrels per day below its self-imposed ceiling of 7 million. This is a result of price discounting by Iran and reportedly by Nigeria and Libya, African producers of higher-quality crudes.
The Africans, resentful of Saudi dominance and anxious to recover their own markets after a long period of low output, were reported resisting Saudi demands for an increase in their price differentials to $3 from the current $1.50. Libya was understood to have asked for a 200,000-barrel-per-day increase to a new quota of 1 million.
But the Saudis, irritated by the tendency toward disarray in the cartel and the challenge to the kingdom's own position, appeared earlier in the day to be pressing their demands to impose higher prices on the Africans, thereby lowering their output to assigned levels.
"We are very strong on changing differentials because the situation as it is now is pressuring the market," said Turki, the Saudi deputy oil minister.
Efforts to reach consensus were complicated by the absence of Saudi Oil Minister Ahmed Zaki Yamani, usually a powerful figure in OPEC and a main architect of past compromises.
The frustration of the meeting was compounded by the feeling among some conference participants that it should never have been called in the first place. Despite obvious cases of violation of the March accord, they said, a wiser course might have been to wait until the end of the summer for the market to reveal more clearly the trend in demand.