Quota-system OPEC outdated?

May 26, 1997 02:00 AM

May 7, 1997 OPEC should formally dump its outdated policy of setting strict oil output quotas and make revenue its sole policy objective, former OPEC Secretary-General Subroto said recently. "OPEC should state its clear cut objective is to optimise revenue," said Indonesia's Subroto. "I would suggest that OPEC could work more smartly to optimise revenues. In other words, not a strict quota policy."
For many OPEC members OPEC quotas already appear a thing of the past. Countries like Venezuela and Qatar have preferred to boost capacity by courting foreign investment and maximising market share while ignoring the consequences for oil prices.
OPEC quotas, with the exception of Iraq's, have not changed since September 1993 and actual output now is running nearly 2 mm bpd in excess of the official 25.03 mm bpd ceiling.
Many OPEC watchers wonder whether the cartel will ever set a realistic ceiling again. Only Saudi Arabia and, to a lesser extent, its Gulf allies Kuwait and United Arab Emirates maintain any significant spare capacity. Saudi Arabia, sticking by the 8 mm bpd quota it was awarded in the throes of the Gulf crisis, still sees a role for supply management to support prices. Others, like Iran and Libya, are keen to maintain prices because of their limited prospects for raising crude capacity.
Subroto said that OPEC's future depended upon a flexible approach which would satisfy all factions. "Market share, increasing production, is one way. The other way is supply management," he said. "But if you want to keep the 11 countries together and keep OPEC intact, you have also to think more about countries that are not able to increase production for a larger market share," he said.

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