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Market Sees Extension of OPEC Production Agreement

October 4, 1986

CHICAGO (AP) _ OPEC ministers are meeting again Monday, and oil traders have bet the cartel will keep its agreement to share lower production patched together.

In July, members of the Organization of Petroleum Exporting Countries agreed to cut production by more than 3 million barrels a day to 14.8 million barrels during September and October.

The deal succeeded in stemming a slide in prices that dropped oil from about $32 a barrel late last year to below $10. Prices have since firmed up around $14 to $16 a barrel.

With the agreement expiring at the end of this month, OPEC ministers will meet in Geneva to decide what they can do now to keep a grip on prices.

″The market tends to think almost overwhelmingly that we’re going to see OPEC simply extend the present agreement through the end of the year,″ said Richard Marose, an analyst in Chicago with Geldermann Inc.

Peter Beutel, an analyst in New York with Elders Futures Inc., said if that is accomplished, the market will take it in stride with little price dislocation.

While trading was jittery this past week, Beutel said, the assumption that the agreement will be extended is so widely shared that it already has been built into the prices on the New York Mercantile Exchange.

The focus after the meeting, he said, will shift to the weekly data produced by the American Petroleum Institute, which has revealed growing stocks of heating oil and gasoline, but a recent downturn in refinery capacity.

But while the market is betting on an extension, the production agreement has not worked perfectly or to the total satisfaction of all OPEC members.

″The United Arab Emirates is pumping about 350,000 barrels a day above its quota of 950,000 barrels,″ Marose said.

Also, he said, Kuwait, one of OPEC’s big producers, ″is saying it’s not very happy with its quota and would like to see it increased.″

Production quotas are not the only debating points.

Venezuela has been sticking by its quota, Marose said, but exporting a lot of oil by tapping its reserves.

″While this tactic was not addressed by the agreement, it was generally understood″ to violate the spirit of the pact, he said.

″Saudi Arabia doesn’t like what Venezuela is doing, and if push comes to shove, Saudi Arabia has huge reserves″ it could dump on the market at any time, he added.

At the meeting, Marose predicted, ″they’ll take about a week of fighting and worrying, and they’ll try other avenues (to get production down), but they’ll end up sticking to the quotas.″

Richard Redoglia, an energy specialist in New York with Merrill Lynch Commodities, agreed that the market is expecting some kind of an agreement, maybe extending the present one for up to three months.

But, he insisted, this is complete speculation.

″If anybody tells you they think they know what’s going to happen, they’re just tooting their own horn,″ he said.

End Adv Weekend Editions Oct. 4-5

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