Oil analysts see stability ahead for OPEC crude output and prices
When OPEC members meet next week, calm will prevail - unlike in March when ministers squabbled over export quotas and prices. For families and consumers in the Western world, good news and bad on oil prices:
The good - world oil prices are not about to go up again. They should stay at current levels for the rest of this year, and could begin inching down early next year.
The bad - they are unlikely to fall very far. Producers have learned their lesson, it seems, and will try to hold down production.
World demand stays low, meanwhile, and is unlikely to rise sharply despite increased economic growth in the United States.
These are the cautious views of a range of industry analysts and other sources contacted on the eve of an Organization of Petroleum Exporting Countries (OPEC) meeting in Helsinki July 18.
In marked contrast to the fast-moving events of January and February of this year, most analysts now see an element of stability in the oil market.
They don't see the prospect of a sudden collapse in prices, which would weaken heavily indebted producers even while it benefited recession-hit consumers.
At the same time, they don't anticipate a rise in prices while demand stays so low.
The Helsinki OPEC meeting is likely to take a sober ''wait and see'' attitude.
It will examine each member's record in holding production down and will prepare the ground for a likely meeting later this year to boost production quotas as winter demand slowly rises.
''In the last few years, OPEC meetings have talked about price, but now and for the next few years the emphasis will be on production,'' says David Johnson, of the Edinburgh-based analysts Wood, Mackenzie &Co.
Rotterdam oil trader Mike Roffey of the Anro Company says spot prices are holding firm at just above the $29-a-barrel marker price for Saudi Arabian light crude.
''It's what people think is going to happen that's important, more than what's actually going on right now,'' Mr. Roffey said.
''Driving the market today is the US, whose major oil company predictions for demand in the fourth quarter of this year are bullish.
''Demand in Europe is very low, but as long as the Americans keep buying, spot prices will be at or slightly above the official price.''
Analysts agree that OPEC itself has exerted a surprising amount of self-discipline since its historic London meeting in March, at which it lowered its marker price for the first time ever.
''OPEC has done better than anyone expected,'' says Tony Parisi, London bureau chief of the New York-based Petroleum Intelligence Weekly.
''It has managed to cut out discounting by Iran and other members, and it looks as though oil companies are no longer dipping into their stock barrels nearly as much as they were before.
''They are starting to buy instead.''
Mr. Parisi says OPEC, which appeared to be in disarray earlier this year as Iran, Libya, and other members sold at substantial discounts below the then marker price of $34 a barrel, has now gained a ''second wind.''
Why has it been so successful?
''It simply had to do it,'' Mr. Johnson says. ''There was no alternative.''
But OPEC also faces some difficult times ahead, analysts agree.
For how long will its members continue to show discipline while owing massive debts to the richer countries and needing money to counter recession and unemployment?
Some analysts here see the temptation to begin trimming prices by 50 cents a barrel or so as irresistible by the spring of next year, as countries such as Nigeria, Iran, Venezuela, and Indonesia remain financially insecure.
Nigeria still counts on oil sales for more than 90 percent of its government revenues. At the London meeting it was allowed to sell its main Bonny light oil at less of a premium over Arab crudes than Arab states really wanted - and as a result has about doubled its sales since March.
In Helsinki, the Nigerians will be under pressure to raise their price by 50 cents a barrel, but they will almost certainly refuse. Other members will probably not press too hard for fear of upsetting the current overall equilibrium.
''The point is that while demand is going up, it's going up more slowly than OPEC had hoped,'' Mr. Parisi says.
The overall OPEC production quota set in March was an average of 17.5 million barrels per day each quarter. Today, OPEC production has bounced back from around 14 million b.p.d. earlier this year to around 17 million.
Some analysts predict a rise to 19 million b.p.d. by the end of the year. Other estimates are slightly higher, while still others are lower.
Before the end of the year, OPEC will almost certainly have to meet again and consider lifting its production ceiling to 18.5 million b.p.d. When it does so, Indonesia, Nigeria, Iran, Libya, Algeria, and other members will be battling for higher individual quotas.
Saudi Arabia will remain the ''swing'' producer, lowering its own output when necessary to ensure that OPEC doesn't go over the ceiling, flood the market, and push prices sharply down.
''What's going to happen in 1984?'' asks one top London oil analyst. ''It could be a waiting game: OPEC members continuing to be good boys on production, but all the time needing more revenue to pay their bills and loan interest.
''What is going to break first? Can OPEC continue its so-far-impressive asceticism on production to hold prices down - or will the pressure to go back to the bad old days of discounting simply be too much to withstand?''
Much depends on whether consumers continue to draw down oil stocks as they did by between 1 and 11/2 million b.p.d. in 1982.
Some analysts see the major oil companies continuing through next year to draw down their stocks by several hundred thousand barrels a day rather than purchase new crude.
This is demand that would otherwise go to OPEC, since non-OPEC producers such as Britain, Mexico, and the Soviet Union are already producing at virtual capacity.
To this must be added the phenomenon of the US showing healthy economic growth in the first five months of this year, yet sales of oil falling by 4.2 percent, according to industry figures.
No longer does economic growth automatically mean parallel growth in oil demand. The concept of conservation and substitution is now too deeply rooted for that.
Preliminary figures show demand for oil rising in the US by 2 percent in June , but the figure is still small, and London analysts think they may not be sustained.