The price hawks of the oil producers' cartel called today for Saudi Arabia, the leading moderate, to cut its production so that OPEC can impose still higher prices without fear of being undersold.
The oil ministers of the 13 member nations of the Organization of Petroleum Exporting Countries opened talks here today that are aimed primarily at establishing a unified price for OPEC oil and restoring some measure of unity among the producing countries.
Recent price increases have pushed the average cost of a barrel of OPEC oil to $31, a $5.50 increase since the first of the year, but the prices charged by OPEC member countries vary widely, from Saudi Arabia's $28 a barrel to more than $38 for Algerian oil.
Algerian President Chadi Benjedid, in today's opening session, warned that OPEC nations "should avoid flooding the market since that would only benefit the multinational oil companies."
It was a clear call to Saudi Arabia, whose 9.5 million barrels a day represents more than a third of all OPEC production, to stop supplying oil in such large quantities and at the relatively low priced of $28.
But there seems to be rising price resistance now that Western Europe has a record stock in storage of about four months' comsumption. The volatile spot market in oil not tied up in long-term contracts has virtually dried up for lack of buyers even though Iran is producing very little for export.
Estimates of the current surplus in the market -- the amount that is not needed for immediate consumption -- range as high as 2 million barrels a day.
Saudi Oil Minister Ahmed Zaki Yamani is nevertheless refusing to discuss production cuts as long as the others keep pushing for prices that he says are "not reasonable." Asked in the lobby of the Aurassi Hotel, the conference site, whether his country would lower production, Yamani replied, "Why should we?"
One of the main reasons for the surplus in the oil market is that recession seems finally to be having its long-awaited effect, reducing energy demand. Yamani has been arguing for some time that OPEC could bring about a recession by demanding excessive prices.
Venezuelan Oil Minister Humberto Calderon Berti said he thought achieving unified prices here would be "impossible." Yamani said yesterday that he was "very pessimistic" about price unity.
Under these circumstances, the compromise base price of $32 a barrel proposed by Iraq on the eve of the conference seems to have little hope of acceptance. The crazy quilt of OPEC prices in force for the past 18 months is likely to continue at least until an OPEC summit meeting scheduled to be held in Iraq in November.
Failure to reestablish unified OPEC prices puts in doubt the adoption of a long-term price strategy that has been under negotiation for several months. The idea was to provide the industrialized West with a predictable oil price formula under which prices would be raised quarterly to reflect inflation, the fluctuation of major currencies and the real economic growth rate of the Western world.
Ratification of that arrangement was to have been the major business of the OPEC meeting in Baghdad. But the leading price hawks -- Algeria, Libya and Iran -- have been dragging their heels.
Observers believe that Iran's real objection is to the holding of a summit meeting in Baghdad that might enhance the prestige of Iraqi President Saddam Hussein, who has used almost every short of outright war to undermine the Islamic revolutionary government in Tehran.
Iraq's emergence as a leading oil price moderate at the side of Saudi Arabia is generally seen as an attempt to undercut the effects of Iran's virtual disappearance from the oil marketplace. Iran's exports are generally thought to be hovering around 500,000 barrels a day, down from a post-revolutionary high of about 4 million barrels and well below the 6 million barrels produced before the overthrow of the shah.
Between them, the Saudis and Iranquis have largely taken up the slack. Iraqi production is now approaching 4 million barrels a day.
In another move that seemed to raise little general enthusiasm, Chadli demanded that the price of natural gas be raised drastically to meet the price of equivalent amounts of petroleum. It is a view shared by Iran, which also has huge amounts of gas and dwindling oil reserves.
Algeria has been meeting so much resistance to its efforts to raise gas prices that its main customer, El Paso of Texas, has stopped accepting shipments of Algerian liquefied natural gas.
Alternate customers such as the French national gas company have also been hanging back, and the Algerian energy minister, Belkacem Nabi, appears to be in trouble since his attempts to double Algeria's gas revenues have resulted in cutting the income to almost nothing.
The OPEC members who have no heavy interest in gas seem to think they have enough problems controlling the oil market.
Instead of endorsing the Algerian call for higher gas prices, one of the other ministers simply said it might be a nice idea if the big gas producers got together and formed an OPEC of their own for natural gas.