Holding the Key to OPEC Accord. UNITED ARAB EMIRATES
AS the new year begins, oil-industry analysts and fellow members of the Organization of Petroleum Exporting Countries are closely watching to see whether the United Arab Emirates will cut its oil production to agreed-upon levels. At stake is OPEC's new accord to limit the cartel's production to 18.5 million barrels a day as of Jan. 1.
The aim of the accord is to strengthen crude oil prices by exerting more strict controls on how much oil OPEC sells. (Last month, OPEC oil was selling around $14 per barrel, $4 below the cartel's theoretical target price.)
The concern about the United Arab Emirates (UAE) production levels comes as Oman's Oil Minister, Said bin Ahmed Al-Shanfari, is scheduled to visit Moscow this week. His trip is part of a campaign by the Gulf oil producers to enlist the cooperation of non-OPEC oil producers such as the Soviet Union, Mexico, and Norway to limit their production.
Many Gulf-based oil-industry officials agree the UAE is unlikely to abide strictly by its quota. But analysts are divided on how much the Emirates may overproduce and whether overproduction might trigger a new production war within OPEC.
The Middle East Economic Survey recently reported that the UAE is expected to pump 1.4 million b.p.d. in January, as compared to its 988,000 b.p.d. production quota.
Last year, UAE production ranged as high as 1.5 to 2 million b.p.d.
Gulf oil ministers discussed the issue during the Gulf Cooperation Council summit in Bahrain two weeks ago.
Few details emerged, and the matter apparently never went to Gulf foreign ministers or heads of state for formal action. But conference and other Arab sources confirm that the ministers discussed a plan to secretly permit the United Arab Emirates to produce more than its OPEC-assigned quota.
According to one experienced diplomat in the region, the oil ministers - including UAE Oil Minister Mana Saeed Al-Otaiba - ultimately agreed to permit overall production by the Emirates to rise to no more than 1.1 million b.p.d.
Such an agreement, if accurate, would significantly bolster OPEC's overall production accord and appear to solve the one major problem left unresolved during OPEC talks in Vienna last November, the United Arab Emirate's consistent overproduction.
At the heart of the issue is a longstanding protest against a low OPEC quota.
The United Arab Emirates feels it deserves a higher one because of its large production capacity and reserves. The issue also reflects the continuing rivalry among the seven, family-run city-states that in 1971 joined into the loose federation that is the UAE.
Some analysts expressed concern following the OPEC meeting that the entire pact would fall apart in early 1989 if the United Arab Emirates began pumping oil significantly above its quota.
Estimates are that world demand for OPEC crude is running at 19 to 19.5 million b.p.d., some 500,000 to 1 million b.p.d. above the OPEC quota set in November.
Should the United Arab Emirates stick to producing no more than 1.1 million b.p.d., world-oil stocks would begin to decrease gradually. That would strengthen oil prices and prevent a recurrence of their 1986 collapse, these analysts explain.