THROUGH the customary blizzard of hints and rumors, Saudi Arabia seems to be signaling its intention to cut oil production over the coming months. The will not mean shortages in the United States or anywhere else. But it will mean gradually more expensive oil.
There has been a good deal of talk over the summer about the worldwide glut of oil. Oil consumption is down throughout the world because of high prices. But the Saudis have continued to put on the market a little more oil than -- at those prices -- the world is actually using. It is useful -- especially for Americans -- to remember that the gult results from one decision 15 months ago by one government, the Saudis'. When gasoline lines were still long in this country and anxieties were still very high, the Saudis quietly announced that they would increase production temporarily, by 1 million barrels a day over their previous ceiling of 8.5 million barrels. One reason, no doubt, was to remain the Carter administration of the advantages of Saudi friendship.
But there were other, purely economic reasons. The pricing structure of the Organization of Petroleum Exporting Countries had split apart, with most countries abandoning Saudi leadership and going to much higher levels. That has evidently irritated the Saudis deeply, and they have been following a strategy calculated to reimpose their pricing on OPEC. They tried a year ago to reunify prices. But when they raised their prices to the levels of the others, the others leapfrogged them and went higher still. It was easy to do, amidst the fears of shortage that the Iranian revolution had generated. In response, the Saudis patiently began to create the glut -- nothing spectacular, just a little remainder of where the real market power lies.
Now, a year later, the spot price for odd lots of oil is dropping below regular posted prices -- the sure indicator of a slack market. Here in the United States, the prices of decontrolled domestic oil have been falling. Buyers are, at last, backing away from some of the more expensive sources. Those are the signs for which the Saudis were waiting.
They will probably proceed to raise their price about $4 a barrel, bringing it up to $32, by the end of the year. That will reestablish a common OPEC price schedule based, once again, on Saudi crude -- the Saudis' own way of celebrating the 20th anniversary of the founding of OPEC. If the rest of OPEC obediently falls in line, the other half of the bargain is that the Saudis will undercut prices no further. That means reducing their own gigantic flow of exports to whatever level stabilizes prices. It seems probable that they will then cut production even a little more to keep prices moving up at least as fast as the inflation rate, or a little faster.
To consumers of oil, this prospect of continuous stringency and rising cost may seem bleak. It is, in fact, the best prospect that anyone can reasonably expect -- and a great deal better than the past pattern of sudden disruptive crises and unpredictable jumps in prices. If consumers want to restrain those future price increases, there is only one way to do it -- and that is by rapidly decreasing the rate at which they burn oil.