DHAHRAN, SAUDI ARABIA, AUG. 26 -- The Saudi government has ordered its state-owned oil company, Saudi Aramco, to begin increasing production but has yet to set any new output ceiling, according to informed oil sources.
Saudi Arabia is the largest producer among the 13 members of the Organization of Petroleum Exporting Countries (OPEC), and its decision could have a significant impact on spiraling prices. It could also help calm the unsettled world oil market, particularly if the kingdom steps up production by the extra 2 million barrels it says it is capable of pumping over its OPEC-allowed level of 5.38 million barrels a day.
The sources said the government order was issued early last week after Saudi Oil Minister Nisham Nazer publicly warned other OPEC members that if they refused to hold an emergency meeting to discuss the current crisis in the market, his government reserved the right to take immediate unilateral action.
OPEC representatives meeting informally in Vienna have so far failed to respond to calls from Saudi Arabia and Venezuela to turn the discussions into a decision-making conference. Both the Saudis and Venezuelans want OPEC members to approve increases in oil production to offset the loss of 4 million barrels a day of Iraqi and Kuwaiti oil, which has been placed under a U.N. embargo since Iraq's Aug. 2 invasion of Kuwait. Fears of a war in the Persian Gulf region and of a possible shortage of oil have driven oil prices up from about $18 a barrel before the invasion to about $30 a barrel.
OPEC bylaws require a unanimous vote by its membership for any decision on pricing and production to be binding. Delegates in Vienna said the Saudis and Venezuelans would be happy with a majority vote to raise existing quotas. Such action, however, could lead to a breakup of the 30-year-old cartel.
Nazer told a news conference Aug. 18 that "immediately means immediately" when asked how soon Saudi Arabia might take action, and he seems to have kept his word. It was not clear why the government has not made its decision public, but analysts here said it might be because the kingdom is eager to avoid further angering an already hostile Iraq.
In addition, analysts said, Saudi Arabia might not have wanted the decision made known while OPEC's informal discussions on production quotas were underway.
On the other hand, sources said, Saudi Arabia is under pressure from the Bush administration and from many Third World nations to increase production as soon as possible to help meet the needs of Iraq's and Kuwait's former customers. The Saudis already have agreed to provide the exiled Kuwaiti government with 250,000 barrels a day for the three refineries its state-owned oil company operates in Europe.
The Saudi oil minister indicated last week that his country's ability to increase production by 2 million barrels -- half the Iraqi-Kuwaiti total -- could combine with the United Arab Emirates' and Venezuela's ability to provide another 500,000 barrels a day each.
Those three producers alone could make up 3 million of the 4 million barrels previously pumped by Iraq and Kuwait. Nazer said he did not know where the other 1 million barrels might come from.
Oil sources here said it was uncertain how long Saudi Arabia could sustain production of an additional 2 million barrels a day, or a total of 7.4 million barrels. In 1980-81, Saudi Arabia reached a production level of more than 10 million barrels a day but subsequently shut down many of its oil fields as the worldwide demand for oil dropped sharply. As a result, Saudi Arabia had difficulty sustaining production at 6.8 million barrels a day when it tried to do so in late 1988.Special correspondent Michael Z. Wise contributed to this story from Vienna.