From: hernlem@chess.ncsu.EDU (Brad Hernlem)
Subject: U.S./Saudi collusion on oil pricing
Reply-To: hernlem@chess.ncsu.EDU (Brad Hernlem)
Organization: North Carolina State University
Date: Mon, 27 Jul 1992 14:18:28 GMT

reposted from soc.culture.iranian (Thanks to amir@zeus.franklin.edu
(Amir Taghavi)):

SAUDI ARABIA UNDER OPEC'S SCRUTINITY FOR DIALOGUE WITH U.S. ON OIL PRICING

EDINBURGH (JULY 23) IPS - The disclosure that Saudi Arabia and the United
States have engaged in high level dialogue on oil pricing policy will put the
Saudis under intense pressure from colleagues within the Organization of
Petroleum Exporting Countries, oil analysts believe.

Recent Saudi support for a strengthening in oil prices will be questioned, and
greater attention paid to the question of strains in the U.S.-Saudi
relationship.

The kingdom will come under scrutiny not just from the  traditional hawk-eyed
Iraq, Iran and Libya, but from more moderate  members, such as Venezuela and
Nigeria, which lack Riyadh's  privileged position with Washington, although
they are scarcely  less important to U.S. energy policy.

Among the Kingdom's most vociferous critics is Iraq, which believes OPEC is
implementing a low-oil-price agenda drawn up in Washington and forced through
the oil producers group by Riyadh.

At the end of the last OPEC conference, Iraqi Oil Minister Osama al-Hithi
angrily declared that the meeting's main pre-occupation "was to reach an
agreement on the (oil production) ceiling that was acceptable to Saudi Arabia."

Al-Hithi continued: "Saudi Arabia is persisting in pursuing the same stance
aimed at reducing prices. This is Saudi Arabia's policy, which exactly conforms
to what the U.S. wants."

At an OPEC meeting last May, Saudi Arabia did secure its prime goals. It stated
it would continue to produce at eight million barrels a day, slightly above the
distribution agreement of 7.887 million barrels per day (MB/D) agreed in
February, that was supposedly rolled over when OPEC met in Vienna.

The kingdom also sent strong signals to the market that it  favored OPEC's $21
a barrel reference price. Previously, it was assumed to be still favoring a
price level of around $18 a barrel -- a level backed steadily by Riyadh ever
since the then U.S. Vice-President George Bush discussed oil policy with King
Fahd during a visit to the kingdom in April 1986.

At the time, the Saudi switch in support of $12 a barrel was seen as a direct
response to the threatened introduction in the European Community of a carbon
tax of up to $10 per barrel of oil -- a move which would have cut the incomes
of oil exporters.

Little attention was paid to the fact that a successful retention of oil prices
at the $21 a barrel level for the rest of the year -- which now looks likely --
would run counter to the  interests of President Bush and his re-election
campaign, since it  would put further pressure on U.S. consumers struggling to
edge  out of recession.

Although Saudi Arabia now wields unprecedented influence within OPEC in view of
its one-third share in all OPEC production, this week's Washington disclosures
will make it much harder for it to secure acceptance of all its goals in future
OPEC deliberations.

"I think it will make it extremely difficult for the Saudis to act in any way
that would cause an OPEC member to say "Are you still doing this"," U.S.
analyst Melvyn Conant said today.

Thus the kingdom will come under intense pressure when OPEC ministers next meet
on September 16.

To date, Saudi Arabia has sought to argue that the market will bear OPEC
production of more than 24.2 MB/D, whereas the OPEC Secretariat, and OPEC's own
panel of experts -- the Economic Commission Board -- argue that the call on
OPEC crude will be no more than 23.7 MB/D.

Saudi Arabia based its calculations on an assumption that both oil demand and
the normal seasonal stock build up would be higher than expected.

But Iran and Libya believe world demand will be at least half a million barrels
per day below even OPEC estimates, while non-OPEC supplies will rise. They thus
argue that the world's requirement for OPEC crude this quarter will be at least
1.5 MB/D below the Saudi estimates.

And since both the Saudi and OPEC estimates were based on a world climbing
steadily out of recession, whereas the current economic climate indicates a
further prolonged delay in economic recovery, the calculations of Iran and
Libya look like being closer to the mark than those of Riyadh.

By the time the ministers meet, they will have firm figures on which to base
proposals for fourth quarter output. But if demand remains low, the kingdom
will have to abandon its cherished eight million barrels per day output level.

Indeed, the kingdom's maintenance of this output level is now likely to be
ranked in OPEC mythology alongside its defense of $18 a barrel crude.

Whether or not the kingdom has ever reached a even a tacit understanding with
Washington on such a figure, it will inevitably be assumed to have done so
since such an output level suits the interests of the world's biggest oil
importer just as much as its suits the interests of the world's biggest
exporter.

Citizens Action, the Washington-based group which secured  evidence of the
long-suspected U.S.-Saudi rapport on oil issues,  secured documentation that
showed the Saudis often informed  Washington of actions they proposed to take
at OPEC meetings  before they announced them to their colleagues within OPEC.

During the run-up to September 16, the oil world will pay much more attention
than usual to meetings between U.S. and Saudi officials -- wherever they may
meet and at whatever level they might be held.




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