GENEVA, JULY 26 -- With the threat of military conflict in the Persian Gulf easing, OPEC oil ministers today worked toward expected agreement Friday on new production ceilings and a target price rise expected to be at least $2 a barrel.
The negotiations here were surrounded by a show of harmony that contrasted sharply with the past week of military threats and verbal assaults by President Saddam Hussein's Iraqi government against Kuwait and the United Arab Emirates.
Kuwaiti Oil Minister Rashid Ameeri made a display of friendliness toward Iraqi Oil Minister Issam Abdul-Rahim Chalabi as the talks formally got under way this morning. "We are friends," Ameeri said as he sat next to Chalabi.
Oil analysts in the United States said, however, that it would be difficult for the Organization of Petroleum Exporting Countries to sustain any significant price increase because of a worldwide surplus of crude oil created mostly by OPEC overproduction.
These analysts said an increase in the target price from $18 to $20 probably would have little immediate impact on consumers because cheaper crudes are widely available on the spot market and from non-OPEC producers.
The OPEC reference price, an average of several crudes, fell from more than $20 a barrel at the beginning of the year to less than $14 in June and stood at about $16 before the current crisis in the Persian Gulf erupted 10 days ago.
Iraq, hard-pressed for increased revenue after its eight-year war with Iran, has demanded that OPEC set a new target price of $25 a barrel, up $7 from the $18-a-barrel target price that has been in place since December 1986. Libya also has sought a sharp rise.
Indonesia's oil minister, Ginandjar Kartasasmita, said "there is a general feeling" among the ministers here that a $25 price would be too high, given current slack demand, even if discipline holds on production quotas. A $20 price is more likely, he said, explaining, "We want to be realistic."
Saudi Oil Minister Hisham Nazer told reporters, however, that prices of $21 or $22 were also under discussion and that an accord has not yet been reached.
Algerian Oil Minister Sadek Bousena, who was elected OPEC's new president, pointed out that the dollar's drop in currency markets has meant oil-producing countries get less value for the dollars they take in from oil sales.
Under a Saudi proposal that is given a good chance of adoption in the final scheduled session Friday, the oil ministers could agree to limit production to 22.5 million barrels a day. A confidential OPEC estimate put production in the second quarter of this year at 23.5 million barrels a day, the Associated Press reported.
Kuwait's Ameeri and United Arab Emirates Oil Minister Mana Said Otaiba both denied today that their countries had violated the previous quotas. But independent industry analysts have said the two countries were each producing up to 2 million barrels a day this spring, a half-million barrels above former quota limits.
Behind today's apparent progress toward agreement, however, was an unpredictable new situation in OPEC, resulting from Iraq's resort in recent weeks to the threat of force to influence the cartel's pricing system and compliance with its pumping quotas.
Saddam's strong-arm tactics included troop movements toward the Kuwaiti border, crossing a line that OPEC's 13 member governments have carefully observed in the organization's 30 years of existence.
Reports from Baghdad, the Iraqi capital, said Saddam has agreed to pull back his troops from the Kuwaiti border to calm the atmosphere for Iraqi-Kuwaiti negotiations scheduled over the weekend in Jeddah, Saudi Arabia.
The Jeddah talks, largely arranged by President Hosni Mubarak of Egypt, are to consider, among other things, Iraq's demand that Kuwait pay compensation for oil Baghdad says was pumped illicitly from a reserve stretching under both sides of the two countries' border.
Saddam also has demanded that Kuwait, Saudi Arabia and the United Arab Emirates forgive debts estimated at more than $30 billion that were contracted during Baghdad's eight-year war with Iran. Saddam has justified his stand by saying Iraq fought the debilitating and expensive war with Iran as the Arab front line, defending against Iran's radical Shiite Moslem fundamentalism and Persian expansionism in the gulf.
Although the prospect of the talks scheduled for Jeddah took the heat off oil ministers meeting here, Arab sources said Iraq's gulf neighbors will find it difficult to accept such demands and that the quarrel is far from over.