The Organization of Petroleum Exporting Countries decided to today raise the price of crude oil by 14.49 percent in four steps during 1979, ending a price freeze in effect since mid-1977.
The quarterly increases begin Jan. 1 with an immediate 5 percent boost.They will bring the cost of light Arabian crude, the benchmark grade used as the base to calculate prices, to $14.54 a 42-gallon barrel on Oct. 1, 1979, up $1.84 from the current price of $12.70.
If passed directly to U.S. consumers, the total OPEC price increase would add more than four cents to the cost of a gallon of gas at service stations. But much of the gasoline Americans use comes from price-controlled domestic oil, leading U.S. government economists to estimate the average increase at the pumps will reach about 2.5 cents.
The extra payment for oil imported from OPEC countries will add about $4 billion to the U.S. trade deficit, up considerably from what U.S. and European economists had hoped for in forecasting for 1979.
The OPEC increase will affect about half of all the crude oil produced in the world. Delegates to the conference said the increases were imposed partly to compensate OPEC countries for losses they say they have suffered because of the dollar's decline, and partly because demand caused by the slowdown in Iran's oil fields already has pushed market prices beyond the new levels set as minimums by OPEC.
The official communique made no mention of a parallel decision taken here that could also have a major impact on economies of industrialized countries. Oil ministers of several countries, including Saudi Arabia, have decided to impose a price premium on so-called light crudes, which are easier to refine and yield the most sought-after products, such as gasoline.
According to the Saudi oil minister, Sheik Ahmed Zaki Yamani, this move will oblige consuming nations to buy and refine more heavy crude oil.The result, he said, is that "either you in the West scrap your existing refineries, which I don't think you are going to do easily, or you have to upgrade these facilities so you can take the heavy crude."
Ultimately that will also increase the price of fuels used by most consumers in industrialized nations, but the impact will be spread over time and probably cannot be measured yet.
By imposing the price increase in four steps instead of all at once, OPEC limited the "weighted average" of the increase for the coming year to 10 percent. That is, if a consumer nation bought the same amount of crude oil in 1979 at the gradually increasing prices as it did in 1978 at the single price of $12.70, the total annual bill would rise by 10 percent. But the figure for next October will be 14.49 percent higher than it is now, and that price will probably become the starting point for any future round of increases.
Yamani said he was "not happy" with the size of the increases, which he said were too great, and said he hoped there would be a new price freeze for 1980.
Mana Said Oteiba, oil minister of the United Arab Emirates and the new president of OPEC, said that what happens a year from now depends on the performance of the dollar and the inflation rate in the West during 1979.
A conference delegate said the question facing OPEC was not whether to raise prices, which was a foregone conclusion, but how to raise them enough to make up for some of their claimed losses in buying power without exacerbating U.S. economic weaknesses that are the cause of those losses-in other words, how to get more dollars for their oil without further debasing the value of those dollars.
According to the communique issued after the two-day meeting, the 13 OPEC members decided that "should inflation and currency instability continue, thus adversely affecting the oil revenues of the member countries and encouraging the wasteful use of this important but depletable resource, the conference will find it imperative to adjust fully for the effects of such inflation and dollar depreciation."
Asked if that meant OPEC might raise prices still more during 1979, Oteiba said no "We took a decision and we have to stick to it," he said.
The price decision represents a balance between demands of price hawks like Iraq and Libya, which were pressing for increase of 20 percent or more, and those of cash-rich Saudi Arabia and the United Arab Emirates, which would have settled for 5 percent.
Oteiba told reporters the increases compensate producing nations for only "a small proportion of the losses we have suffered because of inflation and the loss of the dollar. . . We are developing countries. We need every single dollar for development, but we accept to sacrifice and take this reasonable decision, which is defensible, and I think it will not create any problem for the world economy to digest."
Oteiba and Yamani said no serious consideration was given to dropping the dollar as OPEC's pricing currency.
The result of that, they said, is that nations like Japan, Switzerland and West Germany are getting their oil at a major discount because they pay for it in declining dollars instead of their own, firmer currencies.
"it is for the industrialized nations to sit together and make the balance between them" to rectify this, Oteiba said.
In the past, OPEC generally has set one price for an entire forthcoming year and imposed it at a single stroke. According to Yamani and other ministers who favored a shift to quarterly increments, the new system will cushion the impact on consuming nations by spreading out the increase and discourage excess late-year buying by speculators who have stocked up in anticipation of price increases. In 1979, the later in the year, the higher the price will be.
Participants said this OPEC meeting was relatively harmonious. According to Oteiba, the broad outlines of the price package had been worked out informally in advance.
His meeting lasted only two days and lacked the theatrics of past OPEC sessions, where walkouts by Yamani and public bickering sometimes have attracted more attention than the issues. All participants said they wanted to avoid repetition of the split that occurred two years ago when Saudia Arabia and the Emirates refused to accept a price increase voted by other members.
"I tried my best to make it a little bit lower," Yamani said of today's price decision, "But the market today is in a unique situation, especially with the Iran crisis."
Unless there is an immediate solution to the Iranian troubles, I think that you in the West will pay much higher than what you will be paying according to the OPEC formula, he added.
The disappearnce from the international market of much of Iran's production is driving up prices.
Yamani said he doubted the Iranian crisis would continue, but added that if it did the Saudis would consider lifting ther self-imposed production ceiling, which is an average 8.5 million barrels a day over the year. Saudi export capacity, he said, is a little under 12 million barrels a day.
On the other hand, he said, If Iran returns to full production and the worldwide oil surplus of last summer returns, Saudi Arabia is prepared to reduce its output so other OPEC countries can sustain their price levels.
Mexico, which is not an OPEC member but whose substantial reserves make it a possible source of U.S. oil in the future, annouced yesterday it will raise prices by 10 to 12 percent.
In addition to Saudi Arabia, OPEC comprises the United Arab Emirates, Iran, Iraq, Libya, Venezuela, Qatar, Nigeria, Kuwait, Indonesia, Algeria, Gabon and Ecuador.