Saudis Confirm Selling Oil Below OPEC Price
Saudi Arabia, the traditional backbone of OPEC’s high-price policy, confirmed Thursday that it is offering discounts in violation of the group’s pricing accords, and one major oil company for the first time indicated that it has been buying that oil.
Other troubles also surfaced as Ecuador’s representative boycotted an evening meeting, saying that he planned to return home and that his president was considering whether the Latin American nation would remain in the Organization of Petroleum Exporting Countries. Ecuador’s action was in protest of OPEC’s refusal to grant a request to increase its production.
“The weight of public opinion (in Ecuador) is in favor of pulling out of OPEC,” said a source in Ecuador’s delegation, who spoke on condition that he not be further identified.
Earlier in the day, OPEC’s president, Indonesian Oil Minister Subroto, told his colleagues that the organization was passing through a period of growing uncertainty and warned that “the price structure could collapse with grave consequence to us all.”
Subroto spoke at a closed meeting of OPEC ministers, but his remarks were distributed by the organization’s official news agency.
An OPEC source, who spoke on condition that neither he nor his nationality be disclosed, said there was a consensus among member countries that they could not prevent oil prices from falling at least $2 a barrel to about $26 over the next six months.
Each $1 decline in the world price of oil, if entirely passed on to consumers, is the equivalent of a reduction of about 2.5 cents in the retail price of a gallon of gasoline or heating oil.
Ahmed Zaki Yamani, the Saudi oil minister, acknowledged the discounting to reporters, and Subroto said Yamani explained it fully to a meeting of the ministers of all 13 member nations.
The Saudi move has been a tacit acknowledgment that OPEC no longer has the clout to dictate oil prices to the world.
Texaco Inc., which previously had refused to comment on reports that it had been buying discounted Saudi oil, changed its response after Yamani’s comment.
Asked specifically if it now would confirm such purchases, Texaco issued a statement saying that it was not the company’s practice to release details of its commercial agreements, but it added: “We have been lifting oil from Saudi Arabia, and we are continuing to do so.”
Exxon Corp. and Mobil Corp., also widely reported to be buying discounted Saudi oil, continued to refuse comment.
Subroto said the day’s talks ended in an impasse and would be continued today. The ministers put off until a December meeting the sensitive question of whether to grant certain countries a bigger share of total OPEC production.
“The conference, at this stage at least, is not able to come to an agreement on the quotas,” Subroto said after an evening session at OPEC headquarters.
He had told reporters earlier that six countries wanted larger shares of the market--Iran, Iraq, Ecuador, Gabon, Qatar and the United Arab Emirates.
Ecuador stayed away from the evening session, and its deputy oil minister, Fernando Santos Alvite, said he would return home today.
“We will reconsider our membership in OPEC if they don’t sanctify our request,” he said, adding that the decision would be up to President Leon Febres Cordero.
No member has quit OPEC in its 25-year existence, and a defection by Ecuador would be a further blow to the image of the group that has tried to unite developing countries by harnessing their natural resources. But analysts said previously that OPEC would not be damaged severely if Ecuador, one of the smaller and weaker OPEC members, quit.
‘Profound Impact’
Subroto said there was no explicit criticism from other ministers of the Saudis’ discounts. But he indicated that it caused considerable worry.
“This is a new thing in the history of OPEC,” Subroto told reporters. “It will have a profound impact on the pricing structure.”
Prices have been rising in world oil markets in recent days.
But analysts and oil ministers have said the recovery is temporary and reflects shortages caused by the disruption of shipments from Iran, which is at war with its OPEC colleague Iraq, and from the Soviet Union, which is not a member of OPEC. The supply shortages come at a time when seasonal demand for heating oil is rising and when oil company stockpiles are lower than usual.
Yamani did not specify the size of the Saudi discounts but confirmed that his country had signed “netback” contracts, which are pegged to the market value of products such as gasoline that are refined from crude oil. That would put prices about $2 below the official OPEC price of $28 a barrel for Arabian Light crude oil.
The change in Saudi oil pricing policy has been common knowledge in the oil market since September and had little impact in oil markets Thursday. Prices of crude oil rose, and petroleum products turned in a mixed performance.
“The oil market has completely ignored what’s happening at OPEC,” said Edward Dellamonte, an analyst at Prudential-Bache Securities in New York.
The discounts are designed to boost Saudi production from the 20-year low that it reached over the summer. Yamani said Saudi Arabia’s output had climbed to about 3 million barrels daily from an estimated 2 million in July and August.
Yamani confirmed to reporters that he had told OPEC members that his country was not prepared to accept a lower quota in order to allow increases for others.
Saudi Arabia’s quota of 4.35 million barrels a day is by far the biggest in OPEC. So, without a concession from Yamani, agreement on higher allotments for Iran and the five others seemed highly unlikely.
In his remarks to reporters, Subroto painted a bleak picture for OPEC’s immediate future. He said the group’s experts had concluded that demand for OPEC oil would not exceed the current quota of 16 million barrels a day this winter. That compares to OPEC production of 31.5 million barrels daily in 1979.
