OPEC ministers decided today to freeze oil prices until the end of 1981 but failed to reach full agreement on production cuts to solve their problem of a glut on the world market.
A majority of the 13 members of the Organization of Petroleum Exporting Countries did agree to cut oil production in their countries by a minimum of 10 percent. But according to several ministers, Saudi Arabia, by far OPEC's largest oil producer, refused to go along with the decrease, undercutting its impact significantly.
The outcome at the least meant more delay for Saudi Arabia's goal of a longer term price freeze and a unified OPEC price structure. For Americans, it meant prices of petroleum products such as gasoline and fuel oil are unlikely to rise in the coming few months, and may even decline with oil supplies likely for the time being to continue exceeding demand.
The oil ministers' decisions at a two-day meeting here also seemed to frustrate for the moment OPEC's goal of quickly restoring a sense of equilibrium to the world oil market, although today's decision did mark a start in this direction.
The move to cut back production was a departure, reflecting the depth of distress organization members are feeling about a weakened market that is depressing world oil prices. But without the immediate cooperation of Saudi Arabia, whose stated oil production of 10 million to 10.3 million barrels a day accounts for more than 40 percent of the OPEC total, today's action falls short of a full balancing of the oil market.
The Saudis claim to have deliberately engineered the oil glut to persuade other OPEC nations to moderate prices and adopt a long-term pricing strategy. Earlier today, oil ministers had sounded optimistic about a compromise that would have provided for the Saudis to cut production and raise prices for their Arabian light crude in the interest of narrowing the spread of OPEC prices.
The Saudis currently occupy the low end of the OPEC pricing scale, charging $32 a barrel for their light crude. Other OPEC nations price their oil as high as $41.
The unwillingness of other organization members to concede on the Saudis' basic demand to stretch the price freeze over 18 months may have accounted for the Saudis' unwillingness to declare its intentions clearly on future price or production moves.
Several oil ministers told reporters at the end of the semiannual OPEC price-fixing conference that they were under the impression that Saudi Arabia would increase its price later, and possibly trim its production also. But there was no public comment on this from the Saudi oil minister, Sheik Ahmed Zaki Yamani.
Saudi Deputy Oil Minister Abdul-Aziz Turki told reporters, "We have tried to reach a unified price, and in the absence of a unified price we are going to stay at $32."
Saudi Arabia traditionally has been reluctant to admit publicly to discussing production levels at OPEC meetings, viewing such decisions as a matter of sovereign national right.
In an action sure to be welcomed by Saudi Arabia, the Opec countries also decided to look again at a longterm marketing strategy. Such a strategy was proposed last year by a special committee under Yamani's leadership.The OPEC ministers authorized another committee, again under Yamani's chairmanship, to present a report to the conference "as soon as possible."
A final cummunique issued late this evening said that "in light of the prevailing circumstances" in the world oil market, the OPEC nations decided to maintain the reference price for crude at a ceiling of $36, which was the maximum agreed at the last meeting of OPEC members in December in Bali, Indonesia.
The communique also provided for countries with higher quality oil to continue to charge as much as $5 above this ceiling. This covers oil sold by Libya, Nigeria and Algeria.
The production cuts, which are to take effect June 1, were not publicly broken down beyond a simple statement that a majority of OPEC nations committed themselves to at least a 10 percent production cut.
In addition to Saudi Arabia, Iran and Iraq, whose oil production fell sharply last year when war broke out between them, were said by other oil ministers to have been excused from the cutback. I was anticipated that both countries would be trying to regain some lost markets.
"We have decided to leave room for Iran and Iraq when they are ready" to increase their production, said Indonesia's oil minister, Subroto.
The world oil surplus is estimated at between 2 million and 3 million barrels a day. Libyan Oil Minister Abdussalam Mohammed Zagaar told reporters the planned cutbacks would amount to between 1.25 million and 1.5 million barrels a day, which would still leave a substantial excess unless Saudi Arabia also decides to trim production.
Under these circumstances, it remained unclear how Iran and Iraq would be able to find space to regain their shares of the world oil market.
Current surplus has already led to a precipitous drop in spot oil prices -- the prices asked for oil sold outside fixed contracts.
While supported by an economic rationale, the Saudi effort for a more coherent pricing strategy also has yielded substantial political dividends for Riyadh, particularly with the United States, from which Saudi Arabia is seeking to purchase sophisticated military surveillance aircraft.
Aside from the Saudis' stepped-up oil production, the world oil glut has resulted from a slack in demand caused by recession in a number of oil-consuming countries, conservation measures and development of alternative energy sources.
An upturn in industrial and Third World economies later this year could contribute to tightening the oil market. OPEC oil ministers indicated that today's cutback decision was only a temporary measure, pending reassessment of the general market situation at the next scheduled OPEC conference in December.
The Libyan minister also mentioned the possibility of an extraordinary OPEC session in the autumn should market conditions deteriorate.
Despite disagreement between the Saudis and the 12 other OPEC nations, the conference appeared remarkably free of the acrimonious debate that had been predicted. The ministers had sounded optimistic about an agreement throughout the session and greeted the final result with mixed emotion.
"I don't consider it a complete failure or a complete success," said Zagaar, the Libyan minister.