Ex-Saudi Official Warns Against OPEC Cuts

Jan. 11, 2001 -- For world oil prices to remain stable, OPECmembers must not cut their crude production until Iraq ends itspartial suspension of petroleum exports, an influential formerSaudi Arabian oil minister said Thursday.

The Organization of Petroleum Exporting Countries has alreadydecided to curtail output by at least 1.5 million barrels a day — or 5 percent — when its representatives meet next week in Vienna,Austria, Sheik Ahmed Zaki Yamani said.

Saudi Arabia, OPEC's biggest producer, has informed customersthat it will trim its quota by 500,000 barrels a day, he said.

Cut in Production Would Create Shortage

However, Iraq has already slashed its crude exports by anestimated 1.7 million barrels a day, shipping just 600,000 barrelsa day in December. Iraq suspended shipments in a dispute overpricing with the United Nations, which regulates Iraqi exports.

Together with the Iraqi action, an OPEC production cut wouldcreate a shortage of crude on world markets, Yamani said in aspeech at The Royal Institute of International Affairs.

"The first step is not to cut production on the 17th of January(but) to wait and see what the Iraqis will do," he said, referringto the date when OPEC oil ministers are to meet in Vienna toreassess the cartel's production policy.

If OPEC slashed output anyway in an effort to strengthen prices,that would "definitely" create a shortage of crude, he said.Prices would surge as a result, though he did not quantify the sizeof the likely increase.

Several OPEC members, led by Saudi Arabia, have called for cutstotaling 1.5 million barrels a day. Iran and Qatar have argued foreven deeper cuts.

The causes of their concern include an economic slowdown in theUnited States and the replenishment of crude inventories in keyimporting countries.

Yamani, who served as Saudi Arabia's oil minister for 25 yearsuntil 1986, argued that OPEC members should wait to see what theIraqis do first.

"But inside OPEC, they don't think this way. They aregovernments, and they have budgets, and they will not do it thisway," he said.

He added that an official cut of 1.5 million barrels would meana decrease in actual production of just 1.3 million barrels,because some OPEC members aren't meeting their current quotas.

Oil prices peaked at more than $35 last year, then drifted lowerbefore rebounding over the past several days.

Iraq Holds Oil Price Influence

Light, sweet crude for February delivery was trading 38 centslower on Thursday at $29.10 a barrel on the New York MercantileExchange. North Sea Brent, the European benchmark crude, fell 11cents to $25.23 on the International Petroleum Exchange in London.

The average price of OPEC crude averaged $23.69 a barrelWednesday, the most recent day for which it was calculated.

Saudi Arabia hopes to stabilize the OPEC average at $25 abarrel. Over the long-term, the Saudis want to see that pricesettle as low as $16, Yamani added.

However, the Saudis are still haunted by memories of a plunge inprices that followed OPEC's ill-timed increase in production twoyears ago.

"They can't forget 1998. On a very short-term basis, they'rehappy with a high price for oil," he said.

Oil prices will trend downward over the long-term, asalternative sources of energy become more affordable, Yamani said.

Iraq has the potential to hasten that price trend. Iraq couldpump as much as 7 million barrels a day — more than double itsrecent performance — should the United Nations end its tradeembargo and let foreigners invest in Iraqi oil facilities. Iraqcould boost its output "in no time," he said.