Gulf states wait and see as oil prices tumble
Gulf, Economics, 1/31/1998

Gulf Arab oil producers have decided to wait and see whether the oil market will regain balance after being caught off guard by Asia's financial crisis and a sharp hike in OPEC's output ceiling.

An unusually mild winter in the northern hemisphere and a resumption of Iraq's oil supplies have added pressure to the market, sending prices to more than $6 million below OPEC's favored benchmark of $21.

Just days after they won an increase in their market share of more than one million barrels per day (bpd), Saudi Arabia and its Gulf Arab allies began watching helplessly as the market began a steady downward trend.

They have refrained from supporting calls for an emergency meeting of the 11-nation organization of petroleum exporting countries or taking any other hasty reaction in fear it could have a counterproductive impact.

"The Gulf states believe a hasty response could send the wrong message to the market, which is already very jittery," a gulf oil analyst said. "They appear to be waiting, in the in the hope prices could improve when the Asian crisis eases and the market absorbs OPEC's new production agreement."

So far, OPEC's only action has been to invite its ministerial monitoring committee to meet in Vienna to discuss the price crisis.

The committee, grouping the cartel's secretary general Railwanu Lukman with oil ministers from Iran, Nigeria and Kuwait, has no power to decide on output level but can make recommendations to OPEC.

The subcommittee meets every three months and it was not immediately clear what the extraordinary meetings would cover as no figures are currently available by on monthly production under the new agreement.

In an interview with Al-Yamama weekly, Saudi Oil Minister Ali Al-Nuaimi dashed any hope the committee's talks could develop in to a full OPEC meeting.

"What has been said about an emergency meeting is a mere rumor," said Nuaimi, whose gulf country controls nearly a third of OPEC's production, "but OPEC is closely watching the developments in the market."

Nuaimi said there are ongoing telephone consultations between OPEC ministers, but the time has not come to call for an emergency conference as it is too early to judge prices and the market situation and OPEC is not used to hasty reactions.

Experts said oil prices, which sank to their lowest level in four years this week, could firm up with a possible escalation in the standoff between Iraq and the United Nations over arms inspections. The United States has not ruled out a military strike if diplomatic efforts get bogged down.

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