Saudi Arabia says it will not act alone to support oil market
Copyright 1998 Nando.net
Copyright 1998 Reuters
LONDON (January 21, 1998 5:13 p.m. EST http://www.nando.net) - Saudi
Arabia signalled on Wednesday that it has no intention of providing the
lone safety net for world oil markets, despite the price slump putting a
squeeze on the oil-dependent economies of OPEC producers.
A senior Gulf source said that Saudi was supplying higher volumes under
the new mandate agreed by Organization of the Petroleum Exporting
Countries in November and would not act alone to support sagging oil
prices.
The world's biggest oil producer was now "very close" to its new 8.76
million barrels per day OPEC allocation and would not play the role of
"swing producer" to balance the market, the Gulf source said.
The source, familiar with Saudi policy, said Saudi Arabia believed that
oil market fundamentals did not warrant such low crude prices.
"The weakness in the oil price is due to speculation more than
fundamentals on the ground," he said. "It is a problem of expectations.
If we look at fundamentals prices are too low."
He said that Saudi Arabia was having "no problem" selling crude under
its numerous term contracts and expected oil markets to recover.
World oil prices have slumped $6.50 a barrel since early October,
valuing benchmark Brent blend at just $15.30 on Wednesday.
Markets have been felled by a combination of rising supplies and sickly
demand. Extra oil from OPEC and non-OPEC suppliers has coincided with a
mild winter in the big markets of the West and a slowdown in Asian
demand growth because of the region's financial crisis.
OPEC at the end of November raised output limits by 10 percent to 27.5
million bpd but many in the group with the capacity to do so were
already pumping excess.
Recently-resumed Iraqi exports under a United Nations exchange are
expected to push OPEC quickly toward 28.5 million bpd.
Oil analysts warned that OPEC supplies at that level were likely to push
oil prices even lower.
"If OPEC fails to respond at all prices are destined to fall further
during the year, plunging the oil industry into a financial mess
reminiscent of 1986," said London's Centre for Global Energy Studies.
Washington-based consultancy Petroleum Finance said Saudi and its Gulf
OPEC neighbors would need to reduce supplies by 600,000 bpd to stop
Brent falling below $14 a barrel.
"Saudi Arabia will have to show restraint and leadership to avoid a
price crash," said Petroleum Finance.
Oil prices were last as low in February 1994, when Brent briefly dipped
below $13 a barrel.
But the last time OPEC acted to support oil prices by cutting production
was when Brent went into single figures in January 1986.
The Gulf source said that if OPEC were prepared as a group to consider
reducing production then Saudi Arabia would consider that option.
But the source said Saudi Arabia's stance on any new initiative
inevitably would be influenced by the quota violations which have
undermined previous OPEC pacts.
"Within OPEC we are willing to cooperate. If OPEC met and decided
something we would go along with the majority but on the other hand
there is the question of respect for OPEC and quotas," he said.
Riyadh made clear before OPEC's November talks that it wanted a share of
rising world oil demand and was no longer prepared to hold in reserve
such a large cushion of spare production capacity.
The president of Venezuela's state oil company PDVSA claimed on Tuesday
that Saudi had pumped 9.12 million bpd when its official OPEC quota was
still eight million.
The Gulf source dismissed the claim.
Venezuela is one of a number of OPEC producers which have long ignored
official output limits, preferring to maximize revenues by pumping at
full capacity without regard for the impact on oil prices.
The Gulf source reiterated that Saudi Arabia had no intention of trying
to force oil onto unwilling customers.
"We will not produce more than the market can take."
But he said some Asian customers, particularly in South Korea and
Thailand, had found problems raising bankers' letters of credit to cover
Saudi crude purchases.
"They need the oil but they can't get the money to buy it," he said.
"The situation has eased over the past day or two," he added.
On the prospects for a full emergency OPEC meeting ahead of June's
scheduled talks the Gulf source said he could not comment either way.
"We're not going to judge it now. We cannot rule out any option. Let's
wait and see," he said.
Three ministers on an OPEC subcommittee chaired by Iranian Oil Minister
Bijan Zanganeh have scheduled an early meeting in Vienna on January 26.
Other ministers have also been invited to attend as observers but Saudi
Oil Minister Ali Naimi will not go.
The committee has no power to adjust OPEC quotas.
By RICHARD MABLY
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