Saudis to Reduce September Oil Allocations 15% : Energy: Saudi Arabia may be shifting oil to former customers of Iraq and Kuwait. The long-term effect on the U.S. is unclear.

Industry sources said Wednesday that Saudi Arabia will cut by 15% its crude oil allocations in September to large customers, including major U.S. oil companies. But analysts said it is not clear whether the cut will mean that customers receive less crude oil than they need.

The allocation cut was taken by some observers as a sign of an unexpected delay in the long-awaited increase in Saudi oil production to help offset a 4.3-million-barrel-a-day worldwide shortfall of crude under a United Nations boycott of Iraqi and Kuwaiti oil imports. Iraq seized control of Kuwait in an invasion Aug. 2.

But analysts said Saudi Arabia was merely shifting oil to former customers of Iraq and Kuwait in Europe and elsewhere.

In fact, Saudi Arabia has actually boosted its oil production quietly by as much as 300,000 to 400,000 barrels a day as part of a quid pro quo with the United States for sending troops to defend it against Iraq last week, international oil observers said.

The allocation cut may indicate Saudi Arabia’s unwillingness to admit that it is acting unilaterally to increase its oil production without the official sanction of the Organization of Petroleum Exporting Countries.

Saudi Arabia is one of several OPEC members reportedly lobbying for a special meeting of the 13 OPEC nations to discuss raising quotas as an emergency measure.

“The Saudis are not known for being precipitate in rushing ahead of the pack, and I think they want to have as much unanimity on this issue as they can,” said a source familiar with Saudi oil policy.

The oil companies most likely to be affected by the cut include the four former members of the Arabian American Oil Co., which was nationalized by the Saudi Arabian government: Exxon Corp., Mobil Corp., Texaco Inc. and Chevron Corp. But it is impossible to say how important the cuts are “unless we know what the total . . . (requests for crude) were, and how much they were cut, and to what,” said Vahan Zanoyan, senior director of Petroleum Finance Co. in Washington.

At Chevron, spokesman Michael W. Libbey said: “In the near term, our supplies are adequate.” But he and spokesmen for the other oil companies declined to comment on the Saudi action.

The cuts are intended in part to free oil to be reallocated to former customers of Iraq, especially developing nations such as Brazil and South Korea and to Kuwait’s European refineries and service stations, analysts said.

Ole Bjerregaard, a spokesman for Kuwait Petroleum International in London, said the Saudis were negotiating with the company to supply crude oil to replace Kuwaiti oil but that no agreements had been reached. Kuwait Petroleum sells products in Europe made from the equivalent of about 420,000 barrels of crude a day, Bjerregaard said.

In addition, according to one analysis, the Saudis cut the allocations for September to remain within their official OPEC production quotas.

Regular Saudi customers had been buying a little less than their normal contract volumes of crude oil from Saudi Arabia in recent months and making up the difference with Iraqi crude, which had been priced below Saudi crude. As a result, the Saudis were compelled to seek new customers to sell their full quota of crude.

When Iraqi crude was embargoed, the regular Saudi customers came back and wanted to boost their requests back up to their regular contract volumes. But the Saudis, with new customers to satisfy, found themselves in a position of violating their quota if they satisfied all the requests. They therefore cut the allocations.

Word of the cuts came after the close of trading in crude oil contracts Wednesday. The September contract for crude oil closed up 4 cents at $26.46 per barrel in trading on the New York Mercantile Exchange.

Meanwhile, analysts doubted that OPEC was very close to any agreement to boost production quotas to make up for the shortfall of world crude oil.

A meeting of the cartel could be held this week to temporarily void a quota agreement hammered out in July that set total OPEC production at 22.5 million barrels a day.

Saudi Arabia should be able to boost oil production within weeks by as much as 2 million barrels a day above its current OPEC quota of 5.38 million barrels a day.

Without OPEC agreement, it is unlikely that Saudi Arabia will commit publicly to boosting production. But that doesn’t mean that they won’t pump more oil. “Not only that, but they are perfectly willing to raise it even more,” Petroleum Finance’s Zanoyan said.

Venezuela has spare capacity of about 500,000 barrels a day. On Tuesday, Venezuelan President Carlos Andres Perez reportedly said he favored an OPEC meeting and that the cartel members hoped to reach a decision on production levels by the end of the week. Analysts believe that Venezuela has boosted production but is placing the extra oil in storage to avoid violating its OPEC quota on exports.

Other nations with spare capacity include the United Arab Emirates (600,000 to 800,000 barrels a day), Libya (about 300,000 barrels) and Nigeria (200,000 to 300,000 barrels).

Iran, which has no spare capacity, has argued against raising quotas, saying that consuming nations should use up their inventories first, an idea that consumer nations resist.

Iran has been profiting nicely as a result of higher prices and tight supplies. In just two days last week, Iran sold to import-dependent Japan more than 5 million barrels of oil that it had been storing on tanker ships, Zanoyan said.

Indonesia, with little spare capacity, is similarly profiting and does not favor an OPEC meeting right away.

Despite hard lobbying by Saudi Arabia and Venezuela for a meeting, analysts questioned whether one would actually take place. “It’s too tricky an issue,” said Joseph Story, a Middle East consultant in Washington. “They won’t be able to sort it out in advance of a meeting, which is the only way OPEC can look good. Otherwise, they just end up bickering and making themselves look bad.”

GAS PRICE MAY RISE: Unocal does not plan to extend a freeze on wholesale gasoline prices. D3