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Oil Cartel Leader Sees Jump in Prices

October 22, 1986

GENEVA (AP) _ Kuwait’s oil minister predicted Wednesday that a new OPEC agreement to limit oil supplies will drive oil prices higher in the next two months, but some industry analysts disagreed.

Ali Khalifa al-Sabah told reporters several hours after OPEC ended the longest meeting in its history that prices would rise in response to OPEC’s decision, but he could not say how high they might go.

At another news conference to announce the cartel’s pact, OPEC President Rilwanu Lukman said prices were likely to rise by about $3 a barrel by the end of the year to within OPEC’s target range of $17 to $19 a barrel - ″or even higher.″ A barrel is the equivalent of 42 gallons.

The Organization of Petroleum Exporting Countries, after 17 days of negotiations, agreed to limit the oil production of 12 of its 13 members to an average of 15 million barrels a day for November and December. Iraq was not party to the deal.

As a result, OPEC’s overall production is expected to average 17 million barrels daily through Dec. 31, up from 16.8 million in September and October.

Prices on the open market edged slightly higher in Europe on Wednesday. Industry analysts said they saw little chance of prices rising significantly anytime soon.

″The perception that OPEC seems to be lurching from one crisis to another won’t do much for the market’s confidence in oil prices,″ said Stephen Turner, an analyst in the investment firm of Wood, Mackenzie and Co. in Edinburgh, Scotland.

In New York, contracts for December delivery of West Texas Intermediate, the benchmark U.S. crude, closed at $15.19 a 42-gallon barrel on the New York Mercantile Exchange. That was 49 cents less than Tuesday’s close.

″The idea of an agreement was already in the market,″ said John H. O’Connell, an analyst at Refco, Inc. Commodities. He also said the fact that the cartel would increase its production was ″a little bearish.

″It’s not a significant amouunt, but still, they’re overproducing already. All we really need is 16 million or 16.5 million barrels a day,″ he said.

Ed Silliere, an analyst at Elders Futures Inc., said traders were a bit uneasy over the fact that OPEC had so much trouble reaching the agreement.

″They didn’t think it would take so long,″ he said.

The accord amounts to an extension - with several adjustments - of OPEC’s current interim arrangement on production controls. The current system, agreed to last August, was supposed to be a one-time, non-renewable measure.

The OPEC leaders tried but failed, after 11 days of debate, to create a ″scientific formula″ for establishing permanent oil production quotas. They then haggled for another six days over the terms of extending the interim accord.

Iran’s oil minister, Gholamreza Aghazadeh, said that, ″on the whole,″ he was pleased with the outcome of the negotiations. But he stressed that Iran would not agree to another production-sharing deal that did not restrain Iraq’s output. Iran and Iraq have been at war for more than six years.

Although Lukman said the ministers would reconvene in Geneva on Dec. 11 to try to agree on a permanent set of production quotas, the Kuwaiti chief delegate said he did not foresee such an agreement at least until 1987.

Al-Sabah said OPEC needed a permanent system of production limits based on an objective formula for setting quotas. He added, however, that ″we cannot complete it in one conference or two conferences.″

The implication of his remarks was that the most likely outcome of the December meeting was another extension - probably with more adjustments - of the interim system now in place.

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