It's not so long ago that Sheik Yamani, oil minister of Saudi Arabia, was saying that his country was doing the world--especially the United States--a great service by pumping even more oil than it was wise for the Saudis to do. But the United States was a friend in need of oil, and the hefty production would help keep prices down.

In the end, this pitch was one of the reasons advanced by friends of the Saudis for selling them $8 billion worth of AWACS and related military hardware.

But what do we hear these days from Sheik Yamani?

"We might do the world a greater service by producing less oil," he said in a recent interview.

The truth is that last year the Saudis were pumping 10.3 million barrels a day because they could sell that much, and it was in their own national interest to keep prices from escalating to the point that would accelerate the search for alternatives to crude oil.

But Saudi production has now dropped by at least 2.5 million barrels a day because of a growing world oil glut. Even at the more modest price range it had helped to establish, the Saudis cannot find a market for that much oil.

Prices have sagged more than $3 per barrel --equal at retail to about 15 cents per gallon of gasoline, although the decline at the pump has been less--so far. Great Britain is the latest country to slash prices, and more cuts are on the way, although OPEC doubtless will call a summit meeting to try to choke off the slide.

Contrast the current situation with predictions like the CIA's (in a report to the House of Representatives in December 1979) that by 1982 there would be "an average excess of demand over supply of 2 million to 5 million barrels a day."

In a presentation to Israel's Bat-Sheva International Seminar on Energy last month, Washington consultant Lawrence Goldmuntz observed that "such pessimism" had not served the United States well. The belief has been carefully nurtured that the Persian Gulf countries, especially Saudi Arabia, could dominate the Western world's needs for oil for the rest of the century.

Something very different in fact has happened. Total world production of oil plunged in 1980 and 1981, from 47.8 million barrels a day in January 1980 to 39.4 million barrels a day in September 1981. But the big story hidden in those figures is that while non-OPEC output increased, and held steady around 18 million barrels a day, the cartel's production dropped a staggering 9 million barrels a day, from 29.6 million to 20.6 million.

Free World consumption, meanwhile, thanks to intense conservation and switching to other energy sources (caused by OPEC's greedy price increases), dropped from 49 million barrels a day in 1980 to 40 million in 1981. And the consumption trend is down, as Goldmuntz points out.

Other participants in the Israeli Energy Seminar suggested that Western dependence on the Arabs could be diminished further if oil explorations were pushed in the Third World. But the Reagan administration has a peculiar, ideological mind set against the idea of a special lending affiliate in the World Bank to accomplish this job.

One highly discouraging note is that the administration this week proposed to cut spending in fiscal 1983 for the strategic petroleum reserve by $1.6 billion. Measured against all of the multiple waste in the Pentagon budget, this is mindless penny-pinching in a critical area of national security. One is hard put to define exactly what the administration's energy policy is. But one can at least hope that President Reagan, who is supposed to be a true believer in the enterprise system, will take a look at what the oil market is telling him:

There is plenty of oil in the world, and more waiting to be discovered. The United States needs to expand, not contract, the strategic reserve, and to encourage conservation and fuel- switching. Some administration officials reportedly have toyed with the notion of a tariff on imported oil, more as a function of budget needs than energy policy. But there is some support for this notion among Democrats on Capitol Hill who see it as a way of reducing American exposure to the Arab bloc.

As Goldmuntz suggested, the White House needs to formulate an energy policy for the next decade that takes into account the sea change in the world supply-demand picture -- a reversal that removes OPEC from the catbird seat. The good news for the West is that the cartel countries must fight each other and scramble with non-OPEC producers for a share of the market.