Once again Richardson does not have a clue!
OPEC ministers fail to agree on output in first day of talks
By DAVID IVANOVICH
Copyright 2000 Houston Chronicle
VIENNA, Austria -- OPEC oil ministers stumbled Monday in their bid to reach a quick agreement on how much more oil to pump out to world markets.
And U.S. Energy Secretary Bill Richardson's office aggravated an already tense situation by calling the Qatari oil minister in the middle of a sensitive negotiating session, which rankled an Iranian delegation already annoyed by a heavy lobbying campaign from Washington.
The 11-member Organization of Petroleum Exporting Countries remained divided late Monday, with Iran leading the opposition against a Saudi Arabian proposal to raise the group's output ceiling by 1.7 million barrels a day.
Joining Iran in opposition to the Saudi proposal was Algerian Oil Minister Chakib Khelil, who had arrived in Vienna preaching "consensus" and "solidarity." He left the official opening round of the talks, however, saying his country wanted to limit any production increase to 1.5 million barrels a day.
Oil prices fell on the news Monday, with crude futures for delivery in May dropping 23 cents to close at $27.79 on the New York Mercantile Exchange.
April heating oil was 1.14 cents lower to 73.73 cents a gallon; April unleaded gasoline fell 0.20 cent to 94.69 cents a gallon; April natural gas was up 7.8 cents to $2.914 per thousand cubic feet.
Oil ministers will resume negotiations today.
Iran, OPEC's second-largest producer, has little incentive to accept a sizable increase in OPEC production. Iran has very little spare capacity, meaning it would share in little of the benefits of expanding production and would suffer from the resulting drop in prices.
At the same time, the specter of the cartel's disastrous November 1997 meeting in Jakarta, Indonesia -- the last time the OPEC producers agreed to increase their production ceiling -- hangs heavy over the decision-making process.
That decision to boost production, at a time when the Asian economies were in turmoil and demand for oil in the Far East had softened, helped send oil prices crashing below $11 a barrel to record lows when adjusted for inflation.
The OPEC producers then were forced to cut back their production in three stages. Last year, the 10 key OPEC members -- Iraq is still answerable to the U.N. Security Council and was not party to that accord -- reduced their output by 1.7 million barrels a day and then adhered to the deal far more closely than most observers had anticipated.
That sent prices swinging upward again, hitting nine-year highs just three weeks ago and prompting the current calls for another sizable increase.
The United States has been putting intense pressure on OPEC in recent weeks in the hopes of getting the cartel to raise production substantially. Richardson has made numerous visits to the producing nations trying to prod them into increasing their output.
The Republican-controlled House last week passed a bill authorizing the Clinton administration to cut off military and economic aid to any producing nation trying to force up the price of oil.
OPEC officials in Vienna have complained that high-profile pressure has made it more difficult for them at home to sell the idea of a production increase.
On Monday, the 11 OPEC ministers, chased by hordes of news reporters, gathered at the Hilton Hotel for an informal negotiating session that many hoped would lead to the signing of an accord.
But then, in the middle of the meeting, Richardson's office telephoned the Qatari delegation, led by Abdullah al-Attiayah, the president of the OPEC conference, two OPEC delegates said. The session ended with no agreement in hand.
Iranian Oil Minister Bijan Namdar Zangeneh said later, "We don't like to make an agreement under political pressure from the United States."
When asked about the call and the subsequent fallout, an Energy Department representative said, "We don't take this report seriously."
Raad Alkadiri, an analyst with the Washington-based Petroleum Finance Co., described the telephone call as "parochial and shortsighted."
"It's certainly complicating OPEC's decision-making," Alkadiri added.
The Republicans on Capitol Hill, meanwhile, will try to relieve some of the motorists' pain at the pump by temporarily repealing the federal 18.4-cent-a-gallon tax on gasoline, Senate Majority Leader Trent Lott, R-Miss., said Sunday.
OPEC watchers, however, argue that such a move would encourage the organization not to increase production as much as it otherwise might, since the pressure from angry American motorists, and hence Washington, would be diminished.
"If they do that, the Senate is playing into OPEC's hands; it's as simple as that," said Medhi Varzi, director of research for Dresdner Kleinwort Benson in London. The OPEC producers have long called on the producing nations to reduce taxes on petroleum products, and thus, help encourage demand for crude. "This is manna from heaven to OPEC."
The 1.7 million-barrel-a-day proposal being floated would effectively reverse the cutbacks orchestrated a year ago. But that proposal would not add as many barrels as the number would suggest, and certainly not as much as the Clinton administration would like.
The cartel members now are widely flouting their production ceilings, with the estimates of the quota cheating ranging from 1.2 million to 1.5 million barrels a day.
Iraq, meanwhile, has vowed to kick up its production by 700,000 barrels a day within a few weeks. While few analysts believe Baghdad could make good on such a pledge, they do believe the Iraqis could soon be exporting another 300,000 barrels a day or so.
To help keep oil prices out of the $30 range, a price most OPEC countries and even some Houston independent producers think is too high, the cartel is looking for help from some nonaligned producers.
Four non-OPEC countries -- Mexico, Russia, Oman and Angola -- are also attending the meeting.
Mexican Energy Minister Luis Tellez was quoted in a Mexican publication as indicating that his country planned to increase production by 200,000 to 300,000 barrels a day.
But Deputy Mexican Energy Minister Jorge Chavez said Monday in Vienna that the report was incorrect and that his country would make no specific production pledge.
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