Asian crude prices unmoved by output freeze

Asian crude prices unmoved by output freeze

SINGAPORE (Reuter): Crude oil prices in Asia barely moved yesterday on OPEC's decision to freeze its output ceiling into an unprecedented third year, with traders instead focused on developments in Iraq and Nigeria.

The two-day ministerial meeting of the Organization of the Petroleum Exporting Countries in Vienna ended on Wednesday with a decision to keep output quotas -- set in 1993 at 24.52 million barrels per day (bpd) -- for another six months through to June 1996.

Oil traders said they would have been less bearish if OPEC had decided to roll over output quotas for another 12 months instead of six.

International benchmark crude Brent was quoted mid-day at US$16.70/16.76 on the Singapore International Monetary Exchange (Simex), against its settlement of $16.75 Wednesday on the International Petroleum Exchange (IPE).

In trading activity, thinned by market closures in Japan and the United States, uncertainty over price direction prevailed ahead of Thursday's news conference scheduled by Iraq.

Traders said oil prices were also finding some support from news that the U.S. has not ruled out any form of retaliation, including an oil import ban, against Nigeria after nine political activists were hanged there earlier this month.

OPEC Secretary-General Rilwanu Lukman of Nigeria said after the organization's meeting that the conclusion was a hard-nosed decision.

Lukman at a news conference vowed that OPEC would abide by quotas and played down fears that rising sales from outside cartel control might swamp the market and cause a re-run of a 1980s collapse when oil prices went below $10 per barrel.

"Let's face it, no one wants a repeat of 1986...what is happening in the market affects all oil producers," he said.

Market experts said a soft market, partly a result of OPEC's own quota violations, left the 11 participating ministers no option but to extend the official output freeze.

Gabon

The talks also ended with no decision on Gabon's wish to leave OPEC unless it's excused full annual membership fees. Nor did a communique mention the vexed issue of the alleged quota violations adding up to a million bpd above the ceiling of, among others, Venezuela and Qatar.

But delegates said this subject, which had particularly angered OPEC linchpin Saudi Arabia, was a reason why a final closed session lasted eight hours. "At first there was a lot of tension," one delegate said. Venezuela denied over-producing.

The unprecedented quota freeze by OPEC, at a time when world oil demand is rising to historic highs above 71 million bpd, reflects a surge in production from nations that are beyond its control, such as Britain and Norway.

Non-OPEC volume is predicted to rise in 1996 by 1.8 million bpd, more than the expected gain in oil demand.

OPEC is caught in a trap from which there seems no escape. Its quota discipline may fray but it keeps prices firm enough to turn a profit for companies that drill new oil.

Since the "oil shocks" of the 1970s when prices hit $41, a recurring glut has depressed them to values hardly better in real terms than when OPEC was founded in Baghdad 35 years ago.