Saudi's oil surplus puts OPEC over a barrel
The worst that is likely to happen to oil consumers at the May 25 meeting in Geneva of the Organization of Petroleum Exporting Countries is a price freeze -- thanks to serious, "Catch 22" dissension within the oil cartel.
Saudi Arabia is pushing OPEC to adopt first a unified price and then a long-term pricing strategy. OPEC's largest producer would also prefer that the unified price be near, if not at, its own lower price of $32 per barrel.
The United Arab Emirates, Kuwait, Libya, and Indonesia have recommended that production cuts should be OPEC's first move in order to dry up the oil glut on the world market.
Saudi Arabia would therefore appear to be outnumbered if it were not that it engineered the market surplus to make the others bow to its proposals.
The Saudis raised production from 8.5 million barrels a day to 10.3 million barrels a day last year.
United Arab Emirates Minister of Petroleum and Mineral Resources Dr. Mani Said Otaiba this week estimated the surplus to be 2 to 3 million barrels a day.
In a recent American television interview, Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani admitted his nation purposely created the oversupply.
"We engineered the glut . . . in order to stabilize the price," Sheikh Yamani said.
He has also said Saudi Arabia will maintain its production level and not boost prices in order to force other OPEC nations to reduce their fees and settle on one price for the "black gold."
As Dr. Otaiba left for Europe and the OPEC conference, he said the glut must be eliminated before a uniform pricing system can be introduced.
Libyan Oil Minister Abd al-Salam Muhammad Zaqar has also urged that a balance between supply and demand should be restored before discussing long-term strategy.
"If wise minds get together [at Geneva], I think we can keep the price from rising while keeping it a firm price by cutting production," Indonesian Oil Minister and OPEC chairman Soebroto has paid.
OPEC should restrain prices for the remainder of the year and finally adopt a long-term strategy, Venezuelan Energy and Mines Minister Humberto Calderon Berti has advocated.
Yamani contends that wide variations in OPEC prices are not in the interest of consumers nor in line with OPEC philosophy.
A unified price is the first step in a long-term pricing system of gradual and predictable increases in OPEC prices, the Saudis said.
At the moment, Saudi Arabia charges the least per barrel while Algeria and Nigeria each price their barrels at $40.
Libya ranks as the most expensive, charging $41 per barrel.
The higher-priced African nations, therefore, have more to lose because of Saudi Arabia's stand. either way, the Africans will have to earn less for their oil.
If they do not agree to a unified price at a lower level than they currently charge, they will find and reportedly have found it difficult to sell their oil.
Even so, Algeria has suggested prices be increased in Geneva.
Warring Iran and Iraq have both indicated that they need to increase their oil sales in order to fund their sagging, war-wracked economies.
Although it will be more difficult for Iran to do so because of extensive damage done to its oil-producing facilities, both have and are expected to continue increasing their exports.
This will further exacerbate the surplus and put greater pressure on OPEC nations to heed the Saudi's proposals.
For the moment, however, none of the OPEC members is suffering so much from the current market situation that Saudi Arabia is likely to get its way in Geneva.
The Saudis will, however, try to keep prices where they are while they wait for the market to bring more pressure to bear on the others and push them closer to the Saudi way of thinking.