Saudis Won't Extend Temporary Agreement

Associated Press

Oil-rich Saudi Arabia said Monday that it will refuse to extend a temporary OPEC agreement that has helped boost prices significantly since August, injecting fresh uncertainty into the cartel's week-old conference.

The Saudis, ending their public silence on the talks in Geneva, said the Organization of Petroleum Exporting Countries must arrive at a permanent replacement for a 2-month-old interim accord on production quotas that slashed more than 3 million barrels a day from the glutted world market.

The Saudis also indicated that they wouldn't accept any new agreement unless it included a boost in their share of total OPEC production, already OPEC's largest at 4.35 million barrels daily.

The cartel's total production under the temporary agreement is targeted at 16.8 million barrels and has helped drive prices from the $7 to $12 a barrel range to the $14 to $16 range.

Could Push Down Prices

The Saudi Arabian statement, released by the official Saudi press agency in Riyadh, added tension to the OPEC meeting, which has made little progress toward agreement since it started last Monday. The lack of an agreement could push prices down again.

Rilwanu Lukman, the OPEC president and oil minister of Nigeria, said the ministers decided to suspend the full conference while a three-minister committee that he heads prepared recommendations on production quotas.

He said the 13-nation conference might be reconvened as early as Wednesday. He did not indicate whether the deliberations were near a conclusion.

Lukman said the ministerial committee, which includes his counterparts from Indonesia and the United Arab Emirates, would meet with the heads of the other delegations Tuesday and perhaps Wednesday to assess their views.

Lukman did not rule out a final decision to simply extend the current, interim agreement on production quotas. He stressed, however, that OPEC was "primarily interested in setting permanent quotas."

The Saudi government statement said an interim agreement "cannot be a substitute for a permanent agreement on distribution of quotas." Kuwait is the only other OPEC member that has rejected extending the interim accord. Kuwait also wants a bigger share of the production.

Issued After Cabinet Session

The statement, issued after a Cabinet session in Riyadh headed by King Fahd, said Saudi Arabia "affirms the necessity of reaching an agreement for distribution of quotas on the proper economic basis that would achieve fairness."

It also said a new system should compensate Saudi Arabia for what were called the sacrifices that the country had made for OPEC since the founding of the organization in 1960.

Saudi Oil Minister Ahmed Zaki Yamani has stayed out of public view during the Geneva talks.

By demanding that the cartel leaders stay in Geneva and compose a permanent system of production quotas, Saudi Arabia and Kuwait have forced the organization to confront its most fundamental divisions.

Lukman, while attempting to portray the deliberations as productive, acknowledged that the oil ministers had not yet agreed on even the most basic aspects of a new policy.

The main problem is that all OPEC members want a bigger piece of the production pie, yet the cartel cannot afford to increase output substantially without risking a new plunge in prices.

"Some of the decisions that have to be made are not technical but are of a political nature," Lukman told a news conference.

Short-Term Solution

The Middle East Economic Survey, a widely watched monitor of oil industry developments, reported Monday that expected involuntary production cuts by Iran and Iraq in November and December could present OPEC with a short-term solution to its deadlock.

The newsletter said Iraq's oil production in November and December will be reduced by 300,000 barrels daily because of construction work on a Saudi pipeline that carries Iraqi crude.

Iraq currently produces 2 million barrels daily.

The newsletter said Iran's production already is down to 1.4 million barrels daily, compared to its interim OPEC quota of 2.3 million barrels daily, because of damage inflicted by Iraqi air raids on its export terminals.

The publication said Iran's output may be further restricted in the coming two months as the result of further Iraqi attacks. Iran and Iraq have been warring for more than six years.

With Iran and Iraq both far below their oil production targets, the cartel could afford to give Kuwait and perhaps a few of its more financially pressed members a temporary increase in their quotas without putting OPEC above its overall target.

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