OPEC MEET FAILS TO BRING QUOTA VIOLATORS TO HEEL

OPEC MEET FAILS TO BRING QUOTA VIOLATORS TO HEEL

Failure by the Organization of Petroleum Exporting Countries to obtain guarantees from its quota violators to rein in their output has left the group facing a possible second-quarter price drift and the prospect of a stormy conference at the end of May, observers say.

Following the two-day market monitoring committee session on Friday and Saturday, ministers, delegates and analysts now say a price drop for heavy crudes of at least $1 a barrel is possible over coming weeks.Declines could continue after that, as a result of continuing overproduction and a spring downturn in demand.

However for lighter oils, whose predominance in OPEC's seven-crude official basket price is becoming an important political issue, the fall may be less sharp.

"In the worst case the OPEC basket will fall $1 during the second quarter," Indonesian oil minister Ginandjar Kartasasmita said.

Vienna-based oil analyst Bahman Karbassioun commented, "Definitely the sour (high-sulfur) crudes are going to decline much faster than sweet (low- sulfur) crudes because of excess supplies. In the first two weeks of April when the oil starts hitting the market the price could be as much as $1 lower than (at) present."

Meanwhile oil industry executives already report that some Persian Gulf oil producers are offering additional discounts for April crude oil deliveries, on top of those already announced, to protect long-term customers.

With the OPEC Secretariat forecasting the second-quarter call on OPEC at no more than 21 million barrels a day and production running at above 23.5 million b/d, the dangers of a price slide are real.

Ministers have stressed in public statements that any price fall will not be large enough to provoke OPEC into calling an emergency conference before May.

Nigerian Oil Minister Jibril Aminu said he felt it would be "highly unlikely" that price declines in the coming quarter would be serious enough for OPEC to have to convene another conference.

Despite pressure on prices, a majority of OPEC members feel the official price should be increased by as much as $2 at the May conference, and different ways of doing this were discussed.

"Some favor a straightforward hike in the minimum reference price to $20. Others argue for the basket price to stay at $18, but for its composition to be altered by adding lower-priced heavy crudes and removing one or more light crudes, which in effect would increase the value of the basket," a delegate said.

''A third way is by some way relating the basket to inflation, by having a real rather than nominal reference price," he said.

One delegate said that ministers have been talking about raising the ceiling from the present 22 million b/d by 500,000 or 1 million b/d for the second half of the year.

Apart from arguments among members on whether a price hike can be justified, the May 25 meeting also will have to tackle other problems including:

* The thorny issue of how to distribute any increase in production quotas.

* The possibility of scrapping the quota system as increasing numbers of members reach the limits of their capacity because of rising demand for OPEC oil in the coming years.

* The potentially divisive issue of appointing a new assistant secretary- general, a post that has been vacant for five years.

The leading contender is Ramzi Salman, Iraq's representative to OPEC's board of governors. While he has apparently received Saudi backing, he is opposed by Iran.