OPEC to meet amid oil-price turmoil


PARIS -- As it prepares for its annual meeting in Vienna, Austria, starting tomorrow, the Organization of Petroleum Exporting Countries is in disarray, perhaps more so than at any time in its 30-year history.

And it faces a long period of uncertainty because of the consequences of Iraq's invasion of Kuwait.

The OPEC system of country-by-country production quotas has been discarded by most of the 13 member states, which are pumping all the oil they can pull out of the ground.

OPEC is producing much more than its ceiling of 22.5 million barrels a day, even though exports of 4 million barrels a day from Iraq and Kuwait have been shut off since Iraq invaded the oil-rich sheikdom in August.

With oil prices swinging sharply on each daily report that fans fears of war or hopes of peace in the Persian Gulf, the world market has never been more volatile.

A peaceful settlement of the crisis could send oil prices plummeting to $10 a barrel, analysts predict.

By contrast, a war could send prices soaring briefly to $60 a barrel or more, the analysts say. Yet even the war scenario depicts a short-lived price increase and a sharp decline after the conflict ends.

But whether there is war or peace, it seems certain that OPEC will face a period of wrenching turbulence for the next year or so.

"For the next year, OPEC will be navigating uncharted waters," said Mehdi Varzi, an oil analyst with Kleinwort Benson Securities in London. "Nobody knows what demand for oil is likely to be or where prices are likely to go."

The Vienna meeting is expected to put off difficult decisions on production quotas as political events are awaited.

"At this meeting, the best thing we can do is nothing," said a senior Saudi oil industry official who asked not to be identified. He described the situation as "a complete mess."

A war in the next few weeks that sent oil prices shooting up to new highs would bring into play all of the industrial world's defensive measures of searching for alternatives to OPEC oil, a course that deeply hurt the group during the 1980s.

But the alternative seems equally grim for OPEC.

A peaceful settlement would leave the world with a huge surplus of oil, pushing prices down immediately to levels that would deeply shake the economies of all oil producers, not only the OPEC members but also the Soviet Union and other nations dependent on oil exports.

Since Iraq invaded Kuwait Aug. 2, the price of oil has gyrated between $25 a barrel and $40 a barrel.

Even during the major supply crises of the last 20 years -- first in 1973 with the Arab oil embargo against the West and then in 1979 when the Iranian revolution shut down Iran's oil output altogether for a few months -- world oil markets have never been as volatile as they have been in the last four months.

During the turmoil, oil prices have fallen by as much as $5 in a single day as word of a peaceful settlement of the gulf crisis spread, and zoomed up by $2 to $3 a barrel in a day when such hopes were dashed.

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