Word: opec
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...past, Saudi Arabia had been the one to stabilize OPEC's overall production level. As the so-called swing producer, the rich Saudis would cut back their output to offset the excess pumping of other members. In 1986 the Saudis got tired of playing the sucker and flooded the market with their unrivaled stores of crude, pushing prices down in an attempt to punish the cheaters and force them to play straight. That method proved of little value in taming Kuwait and the U.A.E., which have rich petroleum reserves and tend to favor lower prices as a way of discouraging...
...billion to $20 billion in loans from them for its war effort. But now that the cease-fire with Iran is two years old, Iraq is rebuilding its oil industry. With an output of 3.14 million bbl. a day, Iraq is tied with Iran for the rank of OPEC's second largest producer. Both trail Saudi Arabia's output of 5.42 million...
...other members of OPEC were spooked by the bellicose way Iraq went about bridling Kuwait and the U.A.E. OPEC Secretary-General Subroto called Saddam's means "alarming." By threatening the overproducers, Saddam brought tensions in the Persian Gulf to their highest level since the Iran-Iraq war. So startled was the U.A.E. that it took the unprecedented step of asking the U.S. to conduct joint military maneuvers, a request Washington granted, sending two aerial refueling planes and six combat ships for the exercise. When Baghdad denounced this "imperialist plot," the Emirates, more shaken than ever, denied anything...
Despite the stretched nerves in Geneva, OPEC's other producers were delighted with the outcome of Saddam's antics, since discipline on quotas will mean more money for all of them. The 13 members agreed to cap their total output at 22.49 million bbl. a day through the end of this year, an increase over the previous ceiling of 22.08 million but less than the 23.5 million that was actually flowing when Kuwait and the U.A.E. were breaking the rules...
Even before the OPEC meeting began, uncertainties generated by Iraq's brinkmanship had driven the average price of OPEC oil to $16.25 per bbl., from less than $14 per bbl. at the end of June. But because buyers have stocked up on cheap fuel in recent months, it will take some time before the new production cap shoves prices as far as the new $21 benchmark. That level may be difficult to sustain beyond the winter, when fuel demand rises naturally, as OPEC members with spare capacity are likely to press for new, higher quotas...