The Organisation of Petroleum Exporting Countries (OPEC) was last night considering a plan to reverse production cuts made last March to try to avoid a confrontation with oil-consuming countries, particularly the US.
The scheme would reinstate as much as 1.7 million barrels per day in cuts that over the past year have helped boost the price of crude oil from lows last February of less than $10 a barrel to recent post-Gulf War highs of about $34 a barrel.
But the outcome of the oil ministers' debate depended on persuading Iran, one of the most vulnerable OPEC economies, that any sizeable increase would not trigger a price collapse.
Senior OPEC delegates yesterday said the production increase would be the first step in a process that could eventually see the reversal of three other production cuts if world demand remained strong and prices stayed high.
Key OPEC countries such as Saudi Arabia, the world's biggest oil producer and exporter, are keen to see much of the speculative froth removed from the oil price, which many analysts see as unsustainable above the $25-per-barrel level.
Yesterday, the price stood at about $27.50 in morning trading on the New York Mercantile Exchange (Nymex).
A senior Gulf oil official yesterday said OPEC was likely to meet again in late May or early June and in September to reassess the impact of an increase. If prices remained persistently high, OPEC would then consider rolling back other production cuts, he said. OPEC's dilemma is that it wants to avoid taking any action that might send oil prices falling below the $20 to $22-per-barrel level needed for financial stability.
A softer oil price would also help OPEC extricate itself from the political limelight in the US, where there have been repeated calls in Congress for President Clinton to use oil from the country's 569 million-barrel Strategic Petroleum Reserve to help drive down prices and ensure that there are adequate fuel supplies. A reversal of last March's production cuts would be a relatively straightforward way to add more oil to the world market while avoiding the bitter arguments which often erupt within OPEC when it is faced with adjusting production quotas.
Assuming OPEC over-production, or "cheating", over official levels of about 1.2 million barrels per day (b/d), a 1.7 million b/d "paper" increase would add about 500,000 b/d of new oil to the world market.
But higher volumes from Iraq, which is outside the production restraint agreement, and additional OPEC over-production should make up the difference to the 1 million b/d of new oil many analysts say is needed.
There were mixed opinions yesterday as to whether a 1.7 million b/d increase will be sufficient to dampen prices and allow a gradual build-up of oil stocks.
