Fair use for educational/research purposes only

September 29, 2000 OPEC's Unity Is Undercut by the Saudis By LARRY ROHTER The Associated Press

ARACAS, Venezuela, Sept. 28  A display of unity by OPEC heads of state at the conclusion of their summit meeting today was undercut by the leading oil producer Saudi Arabia, which caused a sell-off in the petroleum market with a unilateral pledge to pump more crude to weaken prices that have recently hit 10-year highs.

The price of light crude oil, the benchmark grade in the United States, tumbled nearly 4 percent, to $30.34 a barrel and is now nearly 20 percent below the peak of $37.80 a barrel reached last week.

"The kingdom is willing and ready to offer the amount necessary to stabilize the world oil market," the Saudi crown prince, Abdullah bin Abdulaziz al-Saud, declared to other members of the Organization of Petroleum Exporting Countries at their meeting here. "We are worried today by the increase in oil prices, which if continued permanently could lead to a negative impact on the world economy."

Whether the Saudi pledge has a longer- term impact on the price of oil remains unclear. But Saudi Arabia holds the biggest reserves among the 11 OPEC members  and the greatest ability to influence the direction of prices.

An underlying cause of the run-up in oil prices, which have tripled during the last 18 months, was a production cutback agreement that Ali Rodrmguez Araque, Venezuela's minister of energy and now the president of OPEC, negotiated early last year with Saudi Arabia and Mexico. But the Saudi statement suggested that the three nation's singleness of purpose may now be fraying.

There were other indications today that the solidarity was weakening. Mexico's energy minister, Luis Tellez, whose country is a major oil exporter but not an OPEC member, called for world producers to cooperate to keep prices at what he called acceptable levels. Speaking in Mexico City, Mr. Tellez said he expected prices to stabilize eventually around $30 a barrel.

Saudi Arabia's pledge contrasted with the tone of the OPEC summit meeting's host, President Hugo Chavez of Venezuela, who has said the cartel is not to blame for the oil inflation that has caused alarm and protests in the main industrialized consumer countries.

The Saudi pledge also overshadowed a call by the OPEC heads of state for a "constructive dialogue" with the industrialized countries to stabilize oil prices.

"OPEC is willing to dialogue at all levels" of government and "with all the countries and regions of the world," Mr. Chavez said in his closing speech this afternoon. But oil prices, he added later at a news conference, are "only a small part of an infinite globality of themes that we need to discuss."

Oil producers and consumer nations are already scheduled to meet in Riyadh, Saudi Arabia, in mid-November to discuss ways to stabilize oil prices. But Mr. Chavez, citing a telephone conversation Wednesday with the prime minister of France, Lionel Jospin, said that an earlier meeting between OPEC heads of state and their counterparts from the rich industrialized nations or the European Union would be useful "if they desire it."

The 11 members of OPEC, who account for 75 percent of world oil reserves and 40 percent of total output, have agreed to increase production three times this year by a total of 3.2 million barrels a day in an effort to halt spiraling prices. But their efforts have met with little success, and President Clinton last week ordered the release of 30 million barrels from the United States strategic oil reserve in an attempt to drive prices down.

The Saudis have traditionally been closer to the United States and more cautious than OPEC members like Iraq and Libya, which are now closely aligned with Venezuela. Mexico must balance its interest in high oil revenue with its fears of an economic slowdown in the United States, its most important trading partner.

The OPEC heads of state attending the meeting here spoke in one voice, however, regarding what they regard as onerous taxes that the governments of consuming countries impose on oil products. "We are unfairly blamed for all the problems of the world economy" stemming from high oil prices, Prince Abdulla complained, adding that consuming countries should "share the sacrifice through the taxes that they impose on oil."

Consuming countries, though, are sure to resist any linkage between a price drop and a reduction of taxes. To ease taxes would not only increase gasoline consumption, and therefore OPEC's revenue, but extend the dependence on fossil fuels that industrialized countries are trying to reduce through the development of alternative sources of energy.

"According to our calculations, a tax cut of only 10 percent by consuming countries would increase OPEC revenues by 100 percent, of course benefiting consumers who are suffering from those high taxes," Mr. Rodrmguez said at a news conference this morning. He and other OPEC officials also said it was necessary for industrialized countries, the United States in particular, to increase their oil refining capacity to help brake oil prices.

In addition, a joint communiqui read at the conclusion of the summit meeting by OPEC heads of state, the first such meeting in 25 years, contained a reference to the group's alarm at international negotiations intended to shape a treaty on global warming. At the latest round of talks, OPEC members insisted that such an accord must include a commitment to compensate them for any decline in the use of oil.

"The dominant attitude in the international negotiations on climate change is bent on driving a stake into the heart of oil production, especially in member countries," Olusegun Obasanjo, the president of Nigeria, complained. Policies "explicitly intended to dramatically reduce the consumption of fossil fuels" mean that "oil exporting countries would stand to lose more than $20 billion of revenue by 2010," he added.

http://www.nytimes.com/2000/09/29/business/29OIL.html

-- Martin Thompson (mthom1927@aol.com), September 29, 2000