Saudi Arabia today said it would freeze its price for oil at the relatively low figure of $32 per barel until the end of 1982, but at the same time announced that it planned to cut its production by 10 percent beginning next month.
The Saudis, the pace-setters in world oil pricing, detailed their plans following the failure of OPEC oil ministers to reach agreement on a higher uniform price for oil. Saudi oil minister Sheik Ahmed Zaki Yamani said that the 1 million-barrel-per-day production cut, described as a "gesture" to hard-pressed OPEC partners, would be reviewed on a month-to-month basis after September.
[In Washington, government and industry officials predicted that the effect of the Saudi cutback on U.S. prices or supplies would be minimal. The Department of Energy estimated that gasoline prices would rise less than one cent per gallon, if at all, and some analysts predicted that prices might be forced down by competition.]
[The United States, which currently imports about 5 million barrels of oil per day, including 1.1 million from Saudi Arabia, now "is flush with oil," according to DOE spokesman Jay Vivari, with stockpiles of 1.28 billion barrels.]
The announcement by Saudi oil minister Sheik Ahmed Zaki Yamani came after the 13 oil ministers of the Organization of Petroleum Exporting Countries ended a week of intensive pricing talks without agreement. OPEC now faces the prospect of divisive price cutting between members trying to retain dwindling shares in a glutted market.
Oil ministers for Libya and Algeria, currently the two highest-priced OPEC producers, declared today they would rather lose more exports than lower their prices under Saudi pressure. But Nigeria, another expensive exporter, indicated it intends to slash prices in hopes of maintaining sales that are down already by more than 60 percent since the start of the year.
"Anything is possible from now on," Yamani told reporters.
The Saudi oil minister predicted that the average world price of oil will drop to below $34 per barrel, from just about that now, as exporters trim prices wither directly or through indirect discounts.
Yamani said his country's planned production cut, designed to tighten a glutted world market, had been favorably received by other oil ministers when they wre told of it shortly before adjourning today. Yamani said, however, that the month-to-month production decisions after September could change levels either up or down.
This would indicate that the Saudis, who are responsible for about half of OPEC's total production and one-sixth of all the world's oil, do not intend to abandon production as a lever to stabilize and bring down oil prices. Saudi production has risen about 2 million barrels per day since 1978.
Originally, the increases were to compensate for OPEC gaps caused by Iranian revolution and the Iraqi-Iranian war. But they have been sustained recently as part of a Saudi strategy to moderate OPEC oil prices and stem movement into alternative forms of energy.
Yamani said the planned rduction would not end the current glut, estimate at between 1 and 2 million barrels per day. He foresaw continuing surpluses bringing about the price cuts that negotiations this week had not achieved.
Until at least the next official OPEC meeting in December, OPEC members are left with the elastic price structure they have operated under since last December. This provides for a Saudi price of $32 per barrel, and allows others to align their prices on a bench mark as high as $36, with more added for quality oil up to a ceiling of $41.
The compromise proposal that would have fixed a new benchmark at $35 per barrel was blocked by Saudi Arabia, which argued that a period of glut was not time to set a new reference price for oil that would effectively have raised the world's average price. Iran also opposed the $35 mark, because it would have meant the lowering of its price.
Nonetheless, the proposal still seemed alive yesterday when the oil ministers adjourned. They appeared determined to bring pressure on the Saudis by asking their chiefs of state to confer directly with Saudi King Khalid.
Yamani said he did not know how many had actually tried, though several oil ministers said their heads of state had contacted Khalid.
When the ministers reassembled this morning in private session in the hotel suite belonging to Indonesia's prime minister, Subroto, who is current president of the OPEC council, Yamani evidently came close to gaining the upper hand.
The Saudi oil minister said an agreement was nearly achieved for a new benchmark not at $35 a barrel, as the Saudis originally proposed. So convinced was Yamani of success, he said, that when he left the room briefly at 1:00 p.m., he informed his government that an accord was near. But the deal never materialized.
Kuwait's sol minister, Ali Khalifa Sabah, said nine or ten ministers had agreed to the $34 benchmark. Given another day, he said, he was reached, blaming the failure on "psychological" factors. Yamani attributed the breakdown to political problems.
"Most probably, it is hard to reduce prices," Yamani said. "Look what happened in Mexico when they did. Nobody wants to repeat that."
That this week's special meeting took place at all apparently reflected a miscalculation or misunderstanding on the part of Saudi Arabia, which initially said it would not attend a special session unless a successful outcome could be assured. Yamani said today he had thought there was general support for a $34 benchmark before coming to the meeting.
But the deal foundered largely on resistance by Venezuela, OPEC's second largest producer, which insisted at staying at the $36 per barrel price.
Yamani said he was surprised by Venezuela's decision, and questioned the country's claim that it is selling its 2 million barrel per day production at $36.
Yamani said Venezuelan oil is based actually on a benchmark of $35 per barrel. Moreover, he said, almost half of Venezuela's exports are in the form of refined products that are sold at "a very low level price, way below $35."
Yamani attributed Venezuela's stobborness to domestic political factors. The Saudi oil minister stated that his country would not be willing again to consider raising its price to $34 per barrel in the interest of a compromise. "That's history," Yamani said, and declared that Saudi oil would stay priced at $32 until the end of 1982.
Other ministers declined to say what their negotiating positions might be at the next meeting, scheduled for Abu Dhabi, saying that much could happen in the meantime.
Despite the deep disappointment over the failure of the talks, ministers rejected suggestions of an OPEC rupture. "As president, I am very disappointed but do not despair," Subroto said. He added later, "there is not itnention to split."
When asked about OPEC's future, Kuwait's Sabah quoted Mark Twain's famous remark that reports of his death had been greatly exaggerated. He said OPEC would not require "patience with each other."
Meanwhile, Yamani reaffirmed Saudi Arabia's commitment to OPEC, saying a strong OPEC served the interests of the world. "We will make sure the organization is here to stay," he said.
The oil ministers did appear to have come closer to agreement on price reunification this week than they had been at last May's meeting. OPEC has not had a unified pricing policy since early 1979.