Saudi Arabia, hungry for cash because of the world oil glut, has agreed for the first time to sell crude to its Western partners in Aramco on the basis of the oil’s final-product value, industry sources said today.
The Aramco partners are Exxon, Chevron, Mobil and Texaco.
The new pricing method would mean that the processing company and the producer would price crude oil according to the free, or spot, market price of products derived from the oil.
The change would amount to an acknowledgment by Saudi officials that their oil prices are too high in relation to the products made from it. Saudi oil exports have declined to a 20-year low because oil companies, rather than pay OPEC’s official $28-a-barrel price, have been buying elsewhere.
The Saudi move could put pressure on other members of the Organization of Petroleum Exporting Countries to amend their pricing methods and break the united pricing front that OPEC members have struggled to support in the face of excess oil supplies and increasingly successful conservation by Western industrial users of the resource.
The big oil companies have been using oil from their inventories and buying oil on spot markets from other Middle Eastern and North Sea producers instead of taking Saudi oil.
Sources said that, at the last monthly meeting between Aramco members and Saudi officials, a detailed arrangement was presented by several of the companies to the Saudi government, which agreed to consider the proposal.
Discussions have been going on since then, reportedly involving top corporate representatives and Saudi Arabian Oil Minister Ahmed Zaki Yamani.
An Aramco spokesman in Washington said Aramco would have no comment on this subject.
But he said any pricing arrangement would be made between the Saudi Arabian government and the individual companies and would not include Aramco.
Officials at Exxon, Mobil and Chevron refused to comment, and Texaco officials were unavailable.
But industry sources said that more than one of these companies could succeed in winning an agreement from the Saudis because the oil kingdom wanted to increase crude oil exports and thereby cash flow.
However, “it would be surprising if they reached agreement this early, as we had been expecting that such an arrangement might start in October,” commented William Randol, international oil analyst with First Boston Corp.
Randol said that the proposed price agreement, called a “net-backing” arrangement, was seen as the fastest way for Saudi Arabia to increase exports while attempting to uphold the official price structure set by OPEC.
Oil industry sources said that a net-back type agreement was more likely than an agreement by Saudi Arabia to price crude oil on a straight spot basis.
“A pure spot pricing mechanism would be too much at variance with their stated position within OPEC,” one highly placed industry source said.
Spot prices for Saudi crude were said to be rising close to official prices, which has given oil traders reason to treat such an agreement with skepticism. Saudi light was trading at $27.85 a barrel on the spot market Tuesday, 15 cents below OPEC’s official price of $28.
In London, Mehdi Varzi, an oil analyst at the brokerage firm of Grieveson, Grant, told Reuters that outlines of a net-back-related agreement with two Aramco partners had existed for at least a month.