Saudis May Double Output of Crude Oil : Reportedly Would Pump Full OPEC Allotment

Saudi Arabia intends to almost double output to produce its full quota of oil, the Saudi oil minister was quoted as saying Wednesday, but he did not give any timetable.

Ahmed Zaki Yamani, in an interview with the English-language newspaper Arab News, said he expected the kingdom’s production to increase from its present level of 2.5 million barrels per day to its allotted quota of 4.3 million barrels per day. Analysts said such a move would bring about a significant drop in the price of oil.

Yamani said increased production was needed for the kingdom to continue its economic development. Saudi oil production stands at a 20-year low. The sharp drop in oil income has led to the cancellation of a number of projects within the kingdom, including the construction of two refineries.

Reassurance, Not Threat

Oil industry analyst Dillard Spriggs, editor of Petroleum Analysis in New York, said Yamani’s comments were meant to reassure Saudi Arabians rather than threaten OPEC members. “You can’t believe what they’re saying until it happens,” he said.

But Merrill Lynch oil analyst Constantine Fliakos said he expects the Saudis to increase their production as soon as another OPEC member violates the cartel’s price or production quota. “The only way Saudi Arabia can sell more oil is for them to cut the price and cheat also,” he said. “They will wait until cheating surfaces to give them an excuse.”

OPEC’s self-imposed production quota is 16 million barrels a day, less than half of its peak production of 30.9 million barrels daily in 1979. Each member county is assigned a production quota, although a number of countries have continually overproduced. To maintain prices, Saudi Arabia is producing below its quota, but it has repeatedly warned OPEC members that it will boost production if cheating continues. Currently, OPEC is producing about 14.5 million barrels a day.

Yamani expressed some disappointment over the outcome of the recently concluded meeting of the Organization of Petroleum Exporting Countries. But he said that, given the circumstances, they were the best that could be expected.

In the interview, Yamani said the OPEC decision to cut the prices of heavy and medium crudes slightly had improved their marketability, and he forecast a pickup in oil demand starting in August. OPEC agreed to cut the price of heavy crude by 50 cents to $26 and the price of medium crude by 20 cents to $27.20. Those prices are still as much as $1 above spot-market prices, analysts said.

“Now we are going to enter into a comfortable phase which shall last up to the end of next winter,” Yamani was quoted as saying.

Yamani said some of OPEC’s 13 members had refused to cooperate with the newly created executive council over which he presides, which is to examine oil production, oil exports and prices of crude. He said some members even refused to grant visas to the council’s examination team.

But he said that most differences had since been overcome and that “we hope that the council will now be able to realize its goal.”