Stepping up his pressure on OPEC rivals to bargain or risk an uncontrolled drop in oil prices, Saudi Arabia's Oil Minister Sheik Ahmed Zaki Yamani yesterday said publicly for the first time that his country will have to reduce its price.
"The kingdom will no longer play the role of defending the benchmark price and will let others bear the responsibility of their mistakes," Yamani told the Saudi weekly IQRA in an interview carried by the state-run Saudi news agency. "This a price reduction is the only way out, but it will be bitter medicine."
Yamani predicted neither when the Saudis would cut their $34 price nor how much. He has hinted previously at a price cut in hope of scaring other members of the Organization of Petroleum Exporting Countries into agreeing on a package of production ceilings and price levels to avoid a price-cutting war. Saudi media reports have indicated that the Saudis want OPEC ministers to meet to consider such an accord.
Most oil industry sources expect Saudi Arabia, the world's largest oil exporter, to lower its price by $2 or $4 a barrel. Its fellow Arab states on the Persian Gulf--Kuwait, the United Arab Emirates, Iraq and Qatar--have been coordinating oil policies with the Saudis and are expected to match the Saudi price cut.
The impact of the reduction on the United States would depend on whether other OPEC members and non-OPEC oil producers also lower prices. The United States has reduced its dependence on the Saudi-led group, whose exports supplied only 5 percent of U.S. oil consumption in the first 10 months of 1982.
Yamani's statement constituted an admission that the world oil glut and the divisions inside OPEC have undermined the Saudis' 15-month-old effort to support the $34 price. The Saudis have slashed their production to its lowest point in more than a decade to prop up prices and plan to cut back further to less than 4.5 million barrels a day this month from more than 5 million at the end of last year, according to the industry newsletter Middle East Economic Survey, which is considered close to the Saudis.
Iran and Libya, meanwhile, have boosted production by offering discounts of up to $6 a barrel, and Venezuela also has raised output.
"The continuation of this behavior price discounts and excessive production coincided with our loss of patience," Yamani said.
By threatening to cut prices themselves, the Saudis are trying to force their OPEC rivals to share more evenly the burden of fighting the glut. Their difficulty is that any price reduction could trigger a downward spiral as producing countries compete for buyers. The Saudis thus hope to convince the rest of OPEC to keep prices unchanged while the gulf states move down.
But other OPEC members are certain to resist letting the gulf states gain a competitive edge. Nigeria, for instance, already has been under pressure to lower its prices even before a gulf state reduction. Because buyers are shunning its relatively high-priced oil, Nigeria's production dropped from 1.2 million barrels a day in December to just over 800,000 in January and could fall to 600,000 in February, the Middle East Economic Survey reported.