Wednesday June 17, 12:58 am Eastern Time
OPEC Faces Uphill Battle
By DIRK BEVERIDGE
AP Business Writer
LONDON (AP) -- OPEC is staring at the weakest oil market since the disaster year of 1986, and traders are betting the producers can't find a quick fix, if they find one at all.
OPEC's average price plunged to $10.11 per barrel early this week -- a 12-year low and less than half the official OPEC target of $21 that analysts now call a joke.
Some of the biggest players in OPEC, including Saudi Arabia and Venezuela, are promising a new round of production cutbacks -- after an earlier emergency deal failed to rescue the market. Kuwait and the United Arab Emirates pledged more cuts Tuesday night.
The Kuwaiti oil minister, Sheik Saud Nasser al-Sabah, said in Riyadh, Saudi Arabia, that he hopes petroleum exporters can come up with another 1.2 million barrels in production cuts by next week, when OPEC holds its summer meeting.
But analysts aren't sure whether OPEC and its non-OPEC allies in Mexico and Oman can slash production by even 1 million barrels a day. And even if OPEC delivers, the glutted market might not recover for months.
The cheap oil is a bargain for consumers, including gasoline-guzzling U.S. motorists, but it's devastating for the oil producers who planned their national budgets based on much higher oil revenues.
''It's pretty disastrous and there's not really anything they can do to alleviate the troubles very quickly,'' said Leo Drollas, chief economist at the Center for Global Energy Studies in London. ''They might as well write off '98.''
Ten of the 11 members of the Organization of the Petroleum Exporting Countries pledged this spring to cut production by 1.245 million barrels a day. They have delivered most but not all of those cuts, but Iraq complicated the formula by raising production under a United Nations oil-for-food deal, leaving OPEC short of its target.
News that the U.N. might be closer to ending its embargo of Iraqi crude exports, imposed after Iraq invaded fellow OPEC member Kuwait in 1990, prompted oil traders to push prices even lower.
If Iraq gets back in this year, the timing could hardly be worse for the rest of OPEC and non-OPEC producers, also including Norway, who have tried to rescue the market.
''Never dismiss Iraq,'' warned Mehdi Varzi, oil analyst at Dresdner Kleinwort Benson in London.
Oil rallied Tuesday on the futures markets, but in New York the benchmark light sweet crude contract for July wound up 42 cents higher at only $11.98 per barrel -- a depressing number for anybody in an industry that was enjoying premium oil prices of more than $20 per barrel late last year.
Even if OPEC were to announce another 1 million barrels of daily production cuts -- the target many analysts are looking for -- it could take months of adherence to those numbers to reduce the supply glut. And OPEC's members have long lacked the willpower to stick to their production agreements.
OPEC got itself into this jam by agreeing last winter to increase production, just before the economic crisis in Asia severely weakened global oil demand.
Although OPEC's stated production ceiling is 27.5 million barrels a day, too high for current demand, outside experts say output hovers above 28 million barrels.
Analysts aren't predicting a repeat of the 1986 carnage, but they say the industry is changing dramatically.
As Big Oil adapted over the past decade to an era of cheaper prices, cutting production costs and many thousands of jobs, OPEC members have become ever more dependent on high oil revenues, according to Peter Bogin, an analyst at Cambridge Energy Research Associates in Paris.
The huge oversupply, which could persist for months or years, might force OPEC members to find ways to become less dependent on a market they no longer can control, he said.
''They have to say, 'What's our role as a cartel, if we are a cartel, or can we accept $6 or $8 oil?''' Bogin said.
OPEC formally opens its meeting on June 24 in Vienna, Austria. OPEC members are Algeria, Iran, Iraq, Indonesia, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
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