A meeting of the Organization of Petroleum Exporting Countries to find new ways to shore up world oil prices collapsed today when oil ministers from the 13 member states failed to agree on a new set of production quotas to soak up a persistent oil glut.
After three days of consultations, the ministers decided to call off their meeting without ever declaring a formal session and to reassemble in Geneva on July 22. They chose to leave official price and production levels unchanged, even though many members are finding it hard to sell their oil because free market prices are running $2 to $4 below OPEC's rates.
OPEC Chairman Subroto of Indonesia, who presided over the meeting, said the 13 states affirmed their intention to stop "malpractices" such as hidden price discounts and barter deals, which have eroded the cartel's unity. Such promises have been made before but the cheating on prices and quotas has not stopped.
The ministers mulled over several proposals to shore up the depressed oil market but could not reach a consensus on any initiative that might reverse the steady decline in world oil prices.
One idea, to create a central agency to control marketing of OPEC oil so that prices and output are scrupulously managed, evoked skepticism on the grounds that it would take too long to set up and would inevitably impinge on national sovereignty.
Another plan, to arrange a "floating" production ceiling so that output would fall in the northern hemisphere's summer and rise in winter according to consumption patterns, appeared close to acceptance earlier today.
It was strongly supported by Saudi Arabia, which wants to abandon its role as the swing producer, adjusting output to prop up prices, because the market slump has forced its production down to 2.3 million barrels a day.
Saudi Arabia now insists on having a fixed quota, above its current output, like everyone else. But when other ministers realized that their countries would have to trim production to help the Saudis achieve that, they balked. Many OPEC members are desperate to sell as much oil as they can because of pressing economic troubles, and there is little sympathy for Saudi Arabia, which has financial reserves estimated at $100 billion.
The Saudis contend they are being forced to subsidize rampant cheating by those OPEC states that break ranks by selling below official prices or surpassing their production quotas.
But some ministers contend that Saudi Arabia has also engaged in barter deals that undercut oil prices, including the purchase of 10 jumbo jets for oil in the past two years.
"Every one of us is guilty of one thing or another; there is not one country that is exempt," said Nigeria's Tam David West, whose country has been accused often of selling oil below OPEC prices and producing more than its quota.
Yamani expressed hope that today's promise not to undercut OPEC decisions would help firm up the market and enable Saudi Arabia to boost its output very soon.
"I think if we stop giving discounts and stop all these practices such as barter , this will affect production immediately," he told reporters after the meeting.
Kuwait's Ali Khalifa Sabah said that if the illicit practices do not stop, members guilty of them are subjecting not only OPEC "but themselves and the rest of the world to great risk."
Some oil analysts believe that too many forces are aligned against the cartel for it to continue very long without deciding on either a major price reduction to stimulate demand or severe production cuts to absorb the surplus.
Non-OPEC producers such as the Soviet Union, Britain, Norway and Mexico are now pumping nearly twice as much oil as OPEC and they are cutting their prices repeatedly to attract new customers.
In addition, conservation techniques have greatly reduced demand for oil over the past decade. The world economic recovery has been slow to generate new demand, mild weather has curtailed consumption and the anxious search by hard-pressed OPEC states to find buyers for their oil have all contributed to a depressed market.
The gloomy apprehension pervading OPEC was reflected in a statement distributed to reporters today by Venezuelan Oil Minister Arturo Hernandez Grisanti. He warned that if OPEC ceased to function effectively, "there will be anarchy in the market and prices will come down rapidly to very low levels."
He said industrialized nations were shortsighted in encouraging this downward trend because they were "setting the stage for future oil crises" similar to that of the early 1970s that would ultimately harm consumers. Moreover, many producing countries could soon "have serious difficulties in honoring their debts" and this would gravely damage western banks, he said.