Saudi Arabia will raise oil prices by 5 per cent next month, ending the split in the Organization of Petroleum Exporting Countries and adding $3 million a day to the industrial world's energy bill, a well-informed petroleum journal predicted today.
The Middle East Economic Survey, which has proved reliable about Saudi Arabian oil policy, forecast the price hike, despite the success of Saudi Crown Prince Fahd's recent Washington meeting with President Carter.
The Saudi increase would end the two-tier OPEC price system that has been in effect since December when Saudi Arabia and the United Arab Emirates decided to raise their price only 5 per cent, while the remaining 11 members voted to raise their prices 10 per cent at that time and an additional 5 per cent in July.
There have been indications recently that Saudi Arabia intended to raise its prices of the end of the year to the level of the other OPEC members. It has also been reported that the OPEC majority has abandoned its plan for additional 5 per cent increase in July. Together, these two moves would restore a single OPEC price system.
The magazine said the Saudis had decided to increase their prices because of the collapse of the North-South Dialogue between rich and poor nations in Paris.
[State and Treasury Department officials said in Washington that they have had no indication that the Saudis have agreed to a 5 per cent price increase. U.S. officials also said the reported link between a Saudi price boost and the North-South talks in Paris is inconsistent with their understanding of the Saudi position.]
[The U.S. now imports about 1.5 million barrels of Saudi oil per day. Saudi Arabia and the United Arab Emirates are now selling oil for about 60 cents a barrel less than other 11 OPEC members. If the Saudi's increase all prices by 5 per cent and the other OPEC countries maintain current price levels, the U.S. oil import bill will rise by about $1.4 billion by the end of the year, according to U.S. officials.]
Saudi officials have said they would try to hold the line on oil prices on two conditions:
Progress in Third World efforts to change the world economic system to the North-South talks:
Increased Western understanding of the Arab point of view in the Middle East conflict.
The magazine reported that the Saudis were satisfied with President Carter's recent comments on the Middle East. It said Carter and Fahd did not discuss oil prices, but the Saudis had agreed to an American request that they raise oil production ceilings to provide the planned American strategic reserve.
While the Saudis were reportedly satisfied with the Western position on the Middle East conflict, the collapse of the two-year North-South discussion convinced Saudi leaders of the need to reunify quickly the OPEC oil price structure and smooth over rivalries within the Third World's most powerful pressure group, the magzine said.
The magazine also said Saudi Arabia will stop trying to increase its output of crude to keep oil prices down and revert to its former ceiling of 8.5 million barrels a day, plus any extras required to service contracts already signed.
The bid to raise production to more than 10 million barrels per day, as Petroleum Minister Zaki Yamani had threatened to do in December to force the other 11 OPEC nations to lower their price, put the Aramco-operated Saudi system under severe strain.
Oil industry sources said the Abqaiq oil fire last month probably was caused by the unaccustomed stress from constant maximum pumping effort. The fire has caused the oil companies to warn of a possible 30 per cent production shortfall.
Today's prediction by MEES, published in Nicosia, is likely to be followed by many other reports on oil prices leading up to next month's OPEC meeting in Stockholm. Sweden, which is scheduled to try to reach agreement on the price level.
Earlier the magazine had reported that Saudi Arabia and the United Arab Emirates had planned to institute a 2 or 3 per cent raise to narrow the margin with the other OPEC members. This would have been part of the deal under which the other members were to drop the additional 5 per cent boost scheduled for July 1.
The Saudi rapprochment with the rest of OPEC would allow a united front at Stockholm meeting and also spare Riyadh any new confrontation with Iran over oil sales which could prove embarassing if the Abqaiq fire damage proves difficult to mend and Saudi pumping capability is seriously impaired.