U.S. OIL PRICES STRONG AHEAD OF OPEC MEETING
  U.S. crude oil prices are at their
  highest level in more than a year ahead of next week's OPEC
  meeting, even though most industry analysts do not expect any
  policy changes from the session.
      They said prices, which have steadily climbed since the
  organization's accord in December, have risen on technical
  factors within the market and concerns about supplies because
  of the Iran-Iraq war, which could disrupt deliveries from the
  Gulf.
      The U.S. benchmark crude West Texas Intermediate is trading
  around 20.55 dlrs in the July contract on New York Mercantile
  Exchange's energy futures and in the spot market. That is its
  highest level since January 1986.
      OPEC conference president Rilwanu Lukman, who is Nigeria's
  oil minister, said Friday he expects the meeting in Vienna to
  be brief and calm and that OPEC's current price and production
  agreement may only need a slight review.
      Although most industry experts expect just a reaffirmation
  of the December agreement, oil prices continue to climb due to
  a desire to hedge positions in case of any surprises.
      Analysts expect the higher prices to continue until soon
  after the OPEC meeting. At that point, barring any increased
  tension in the Gulf or changes in OPEC's policies, prices
  should begin easing.
      "OPEC will probably not do anything it hasn't already agreed
  to in December because oil prices are firm," said John Hill, a
  vice president at Merrill Lynch Futures.
      OPEC agreed in December to maintain official oil prices at
  18 dlrs a barrel and raise the group's production ceiling to
  16.6 mln barrels per day in the third quarter and to 18.3 mln
  barrels in the fourth quarter.
      This agreement helped send prices sharply higher, rising
  from 15 dlrs a barrel in early December.
      Several OPEC members who are price hawks, including Iran,
  Algeria and Libya, will seek a higher official price and a
  reduction in output.
      "And if U.S. West Texas Intermediate crude continues to
  trade above 20 dlrs a barrel, there is a greater chance that
  OPEC will raise its official 18 dlrs price," said Nauman
  Barakat, analyst at Smith Barney, Harris Upham and Co.
      But most analysts expect the more moderate producers, such
  as Saudi Arabia, to block any changes in policy.
      "The meeting will be a non-event with no change in the
  official prices because OPEC, and in particular the Saudis, are
  committed to stabilizing the market," said Rosario Ilacqua,
  analyst with L.F. Rothschild.
      However, some analysts said OPEC may need to hold a meeting
  in September to re-evaluate market conditions.
      Overproduction by OPEC will become a real problem in the
  fourth quarter when the quota is raised to 18.3 mln barrels a
  day and Iraq's pipeline through Turkey brings another 500,000
  barrels to the market each day, said John Lichtblau, president
  of Petroleum Industry Ressearch Foundation.
      Most expect Saudi Arabia to oppose a price increase at this
  meeting but many look for an increase by year-end to 20 dlrs to
  offset the decline in the dollar. Oil prices are denominated
  throughout the world in dollars, so as the currency declines,
  producers receive less money for their oil.
      "The only real production restraint in OPEC is Saudi Arabia,"
  said Sanford Margoshes, analyst at Shearson Lehman Brothers.
      "In the second half of the year we expect the Saudis not to
  produce at their 4.1 mln barrel a day quota and therefore act
  as a vehicle to stablize the market and pave the way for a two
  dlrs a barrel price increase at the December 1987 meeting," he
  said.
      One uncertain factor is the course of the Iran-Iraq war.
      "The wild card is the increased tensions in the Persian
  Gulf," said Frank Knuettel, analyst with Prudential-Bache
  Securites.
      Oil tankers taking oil from Iraq and Kuwait have been
  regular targets for Iranian planes. The Reagan administration
  is planning to put Kuwait tankers under the protection of the
  U.S. flag, with naval escorts.
      "Extra (oil) inventories are needed during a time of crisis
  like this, and just general nervousness over an incident that
  could disrupt oil supplies drives prices up," Knuettel said.
  

