Saudi Arabia, the world's largest oil exporter, said Monday that it would not freeze its output while others hiked production, rejecting any role as a "swing producer" that would rescue the depressed oil market.
A glut of oil on world markets has forced prices down to their lowest point in two years. The November contract of West Texas Intermediate, the benchmark U.S. crude which plunged 55 cents a barrel Friday, skidded another 31 cents to settle at $13.06 a barrel on the New York Mercantile Exchange. Crude prices have not closed this low since August, 1986.
On the spot market, West Texas crude was quoted at $13.08 late in the day. North Sea Brent was off 35 cents to $11.75 for December delivery.
A statement issued after the weekly cabinet meeting chaired by King Fahd said the kingdom would not accept other members of the Organization of Petroleum Exporting Countries increasing their output at its expense.
"Saudi Arabia wants to abide by the production levels assigned to it under OPEC accords if the other members agree to return to their production levels," said the statement.
Analysts interpreted the statement as a sign the Saudis are intent on boosting their output to drive down prices further and make other oil producers suffer narrowing profit margins. The Saudis threatened that other OPEC members "will now feel the harm of deterioration" that overproduction has on the market.
Saudi Arabia had forfeited more than $109 billion in revenue by cutting its output from 10 billion barrels per day under past accords by OPEC to shore up prices, it said.
"There's a certain strategy within the Saudi camp that they will demonstrate that you can't win by overproducing," said Bob Baker, senior energy analyst at Prudential-Bache Securities Inc.
Oil industry sources in the region estimate that the kingdom is now pumping about 5.7 million barrels daily and that OPEC as a whole is producing more than 20 million barrels daily. Official quotas add up to 15.06 million barrels a day.
The Saudis issued a plea for a rollback in output. They said in a statement: "OPEC members must give a true indication to investors that prices will be steady for a number of years to calm the disturbed market."
In its statement, Saudi Arabia called on non-OPEC members also to join with OPEC, warning that a plunge in oil prices threatens a deeper Third World debt crisis and that would hurt banking institutions in industrialized nations.
Meanwhile, key OPEC ministers say an oil price collapse is inevitable unless members violating the fixed output levels stop overproducing, the Middle East Economic Survey reported Monday.