Oil Prices Fall As OPEC Approves Makeshift Agreement
VIENNA, Austria (AP) _ World oil prices fell sharply Monday in reaction to a makeshift OPEC agreement that analysts said would be a major setback for the bitterly divided cartel.
On European markets, the price of Britain’s Brent crude for January delivery tumbled 83 cents a barrel to $17.15. On the New York Mercantile Exchange, January contracts for the most widely traded U.S. crude, West Texas Intermediate, dropped 87 cents a barrel to $17.44.
Prices fell as soon as trading began, reflecting a widely held view that the agreement among the Organization of Petroleum Exporting Countries would do little or nothing to reduce a global oversupply of crude.
The six-month agreement had been described on Saturday, and the cartel announced that it had been formally adopted late Monday, the sixth day of the tumultuous OPEC conference.
The cartel said the pact was approved by a 12-to-1 majority.
Iraq, which was refused its demand for an oil production quota equal to Iran’s, was the lone holdout, Algerian Oil Minister Belkacem Nabi said as the oil chiefs emerged from a final meeting.
The deal retains OPEC’s official oil price of $18 a barrel as well as its present system of production controls based on a collective ceiling of 15.06 million barrels a day for 12 members, said Libyan Oil Minister Fawzi Shakshuki.
Rilwanu Lukman, president of the Organization of Petroleum Exporting Countries, told a news conference that the accord, designed to last for six months starting Jan. 1, should help stabilize oil prices.
″We expect prices to rise to around the 18-dollar level, if not higher,″ he said in reference to free-market oil prices.
The cartel also agreed to keep intact a five-member committee to monitor price movements in the open market.
Lukman said if the panel determined there had been a ″significant change″ in the free-market price level, an emergency OPEC meeting would be convened to consider production adjustments to protect the official price.
Oil traders were disappointed by the terms of the agreement, and prices reflected that sentiment.
″The verdict is that OPEC has failed miserably,″ said Stephen Turner, an oil specialist at the investment firm of Wood Mackenzie and Co., in Edinburgh, Scotland.
The absence of Iraq from the deal was one of the few political victories for the Iranians, who came to Vienna last week demanding that OPEC raise its price to at least $20.70 a barrel to offset the effects of inflation and a lower dollar.
Both Persian Gulf nations are desperate for oil revenues to finance their 7-year-old war.
An Arab bloc led by Saudi Arabia and Kuwait defeated the Iranian initiative, arguing the glutted world oil market was too weak to sustain a price higher than $18 a barrel.
Iran’s oil minister, Gholamreza Aghazadeh, told reporters the price issue would be ″dealt with next time″ OPEC held a ministerial conference. The next regularly scheduled conference is June 9.
Iraq’s refusal to join the agreement is a major problem for OPEC, since it has said it intends to further increase its output in the months ahead.
It already ranks as the second largest producer in OPEC, behind Saudi Arabia, at an estimated 2.7 million barrels daily. OPEC had offered Iraq a quota of 1.54 million barrels a day.
Iran says it is producing exactly its official quota, 2.37 million barrels daily.
The OPEC pact also is weakened by the inability of the rulers of the United Arab Emirates to restrain the output of Dubai, one of the seven emirates in the federated state. The United Arab Emirates’ overall output is believed to be at least 300,000 barrels a day over its quota.