The No. 1 issue on the oil front is whether OPEC can cut back production enough in the aftermath of the gulf war to prevent a further decline in world oil prices, an industry newsletter said Monday.

The 13-member Organization of Petroleum Exporting Countries plans to hold a ministerial meeting in Geneva March 11.OPEC oil ministers will have to decide whether they can reduce oil production sufficiently to strike a balance between supply and demand in the second quarter and prevent a further, potentially devastating erosion in prices, the Middle East Economic Survey said.

The March 11 meeting will be OPEC's first since the fighting ended in the gulf war and allied forces drove Iraq out of Kuwait, both cartel members.

After Iraq invaded Kuwait Aug. 2, the United Nations embargoed crude exports from both nations in a move that removed about 4 million barrels a day from the world market. OPEC agreed to let members raise their production to offset the loss of supplies, and Saudi Arabia, the cartel's largest producer, made up the lion's share of the embargoed crude.

"Judging from the improvement in prices by about $1.50 a barrel over the past week, the market appears to be betting that OPEC will do what is necessary in Geneva," Nicosia-based MEES said.

World oil prices shot up to $40 a barrel after the Iraqi seizure of Kuwait but have dropped back to the $19-a-barrel range.

To create market equilibrium in the April-June quarter "OPEC would need to remove at least 2 million barrels a day of supply from the market, reducing crude output to around 21 million barrels a day from over 23 million barrels a day in January - and that will be no small matter," the authoritative petroleum newsletter said.

Preliminary and highly informal consultations on the supply and demand side and price perspectives for the second quarter were held in Vienna Feb. 25 by the oil ministers of six OPEC nations: Algeria, Venezuela, Nigeria, Indonesia, Libya and Gabon.

"It was never planned or contemplated that any decisions could be taken or deals struck in the absence of Iran and the gulf producers, the latter having been particularly cool toward the whole idea of the Vienna consultations in the first place." MEES said.

The newsletter said the Vienna talks focused on the short-term problem of the second quarter, when existing production from 11 OPEC members, excluding Iraq and Kuwait, needs to be throttled back to cope with the normal seasonal decline in oil demand.

The talks avoided the potentially more serious long-term dilemma of what happens when Iraqi and Kuwaiti supplies resume flowing to market in significant volumes.

MEES said the six ministers reached a broad consensus in Vienna on a number of general assumptions involving the second quarter:

- No significant output will emerge from Iraq or Kuwait before the end of the second quarter.

- An appropriate level of OPEC crude production required to balance the market in the second quarter would be in the region of 21 million barrels a day.

- The July 1990 agreement, with its overall production ceiling of 22.491 million barrels a day and a minimum reference price of $21 a barrel for the OPEC basket and production-price adjustment mechanisms, should be reaffirmed as the base for future OPEC accords.

- A temporary ad hoc agreement should be reached for the second quarter to reduce production by the necessary 2 million barrels or so to balance the market.

"It goes without saying that no second-quarter production regulation plan stands a chance unless Saudi Arabia agrees to go along," the newsletter added.