Saudi Arabia agreed to raise the price of its crude oil from $28 to $30 a barrel, and there were broad hints that it would soon lower its production to take the current slack out of the international oil market.
This appeared to be part of a package deal in which the rise in the Saudi price, which had been OPEC's lowest, would be the first step toward general acceptance of a Saudi-led effort to supply a formula for quarterly, predictable price rises.
The practical impact of the Saudi price rise is expected by itself to be relatively slight for the American consumer. The United States gets about a quarter of its imported oil from Saudi Arabia.
Apparently in exchange for the Saudi price rise, the other members of the Organization of Petroleum Exporting Countries agreed to freeze their present prices at least until the next regular OPEC oil ministers meeting in Bali, Indonesia, on Dec. 15.
The price agreement, announced here shortly before midnight, came after three days of harsh wrangling among OPEC oil, finance and foreign ministers. During the sessions, it seemed as if the 13-member organization might be forced to establish a two-tiered setup, with the Saudi-led majority on one side and the most radical members -- Iran, Libya and Algeria -- on the other.
Saudi Arabia was apparently able to use the threat of maintaining its current high production level of 9.5 million barrels a day -- more than one-third of OPEC's total production of 27 million -- to force adoption of a broad package deal.
The breakthrough seems to have come tonight when Kuwait moved at a seperate meeting of the oil ministers to set a floor price of $30, provided all of the various surcharges were compressed from their present maximum of $5 to $2 -- so no country could charge more than $32 for oil equivalent to OPEC's benchmark crude, the Arab light of Saudi Arabia. Iran currently charges $37 for such oil.
Saudi Arabia seconded the Kuwaiti motion, revealing in a concrete way for the first time that it was willing to give something in exchange for a deal. Soon afterwards, the ministers sent OPEC and national staffers out of the room so that they could talk privately.
Saudi Arabia has made no formal commitment to reduce its production, a matter it has consistently maintained is its sovereign affair. But there are very strong indications that it has entered into a gentleman's agreement to do just that.
Asked if there is such an unofficial accord, Venezuelan Oil Minister Humberto Calderon Berti would only smile broadly and say, "I can't comment on that."
He repeated several times that the increase in the Saudi price was part of an effort to restore "equilibrium" in the market between prices and production. Today's decision, he said, was the first step toward getting unified OPEC prices so that the long-range price formula could start being applied by Jan. 1.
The deal was made in the absence of Saudi Petroleum Minister Sheik Ahmed Zake Yamani, who quit the meeting less than an hour after it started. He left behind his deputy, Abdul Aziz Turki, evidently with a mandate to negotiate. It was Turki who seconded the Kuwaiti motion.
Later in the day, Yamani had said that he would maintain Saudi production at its present level through the end of the year. It is generally assumed that a Saudi production cut would amount to about 1 million barrels a day, but that it would probably not go in effect immediately.
The Saudis have said for some time that they would eventually prefer to cut back down to 8.5 million barrels a day. Several other countries are considered to be in a position to cut production without hurting their economies, principally Iraq, which has been under pressure to cut production by about 500,000 barrels a day.
Yamani admitted for the first time publicly during this conference that there is indeed a surplus in the world oil market. The general OPEC estimate is that a cut of about 2 million barrels a day is needed to tighten up the world market. While the Saudi price rise would not alone have a great effect on the market, general expectations that it is part of a broader deal seem bound to affect the psychological climate
The roots of the current OPEC disarray date back to the production decline of Iran, once the group's second largest producer with up to 6 million barrels daily before the Islamic revolution but now down to less than 1.5 million barrels of production.
This at first created a major shortfall that Saudi Arabia and its OPEC associates could not make up.
But in the 18 month since the Iranian revolution, recession in the West, conservation measures, mild winters, the huge buildup of oil in storage and switches to other forms of energy have finally combined to create an overall drop in Western oil demand of more than 10 percent. This has been matched by a decline in OPECproduction of only 7.5 percent.
The resulting softness in the international oil market has made it difficult for the highest price producers, especially Iran, to sell their oil. Iran openly accuses Saudi Arabia of stealing its markets by overproducing and underpricing Saudi oil.
Yamani had been resisting demands to raise the basic Saudi price from $28 a barrel to the official OPEC ceiling price of $32. Yamani had said that he would consider raising Saudi prices, but only if the price hawks lowered theirs. Algeria charges $37 a barrel and Iran $35.
There were conflicting statements by ministers here over whether the long-term oil-producing formula would be discussed at a special meeting of oil ministers "somewhere in Europe" Oct. 14. Scheduling of such a meeting was another of the decisions announced here today.
Indonesian Oil Minister Subroto said it would be discussed, but others, notably the United Arab Emirates' Mana Said Oteiba, disputed that.
Venezuela's Calderon insisted that there could be no agreement on the formula unless there first was accord on a joint base price as a starting point. Otherwise, he said, "You cannot apply the formula."
The formula, as worked out in two years of study and negotiation by a committee under Yamani's chairmanship, provides for quarterly price increases based on three weighted factors:
Inflation in the industrial West.
The fluctuations of a basket of 12 hard Western currencies, including the U.S. dollar.
A real growth in the Western world as a measure of the industrial countries' ability to pay more for their oil beyond the effects of inflation.
Iran has wavered between saying it sees no need for any arrangement for smoothing out oil price rises at all and supporting the Libyan and Algerian view that the rises should be on the basis of the generally higher inflation and real growth rates inside the OPEC countries, rather than in the already developed West.