OPEC: No Boost till June

Before leaving on his private jet for last week's price-setting meeting of the Organization of Petroleum Exporting Countries in Venezuela, Saudi Arabian Oil Minister Ahmed Zaki Yamani picked up his Arab worry beads to take them along. He could have left them at home. During the two-day session at the beach resort of Caraballeda outside Caracas, Yamani gave his fellow oil ministers a tough display of Saudi Arabian power in oil politics. Arguing that the international economy is too weak and world oil supplies too high to support an increase over the current $12.70 per bbl. price, Yamani pushed OPEC in effect to accept a freeze for at least the first half of 1978.

The 13 OPEC ministers met in the atmosphere of an armed camp. Fearful of another foray by Carlos, the Venezuelan-born terrorist who two years ago led the kidnaping of the same oil ministers in Vienna, the Venezuelan government set armored personnel carriers to guard roads leading to the conference, while soldiers toting Uzi machine guns patrolled the black sandy beaches. Even aging patrol boats were brought out to cruise the warm Caribbean waters in case Carlos tried an amphibious assault.

Carlos never showed, and the real specter hanging over the meeting was the growing worldwide glut of oil. During recent months the world has been awash with excess production of some 2 million bbl. per day, and Western oil stocks are currently 25% above pre-1973 embargo levels. Producers like Libya and Algeria, even while arguing for an official price hike, have been shaving their market prices by 40-c- or more per barrel.

The oversupply has been caused primarily by the arrival of oil on the market from new North Sea, Alaskan and Mexican wells. Those three areas are now producing an estimated 2 million bbl. per day--precisely the amount of the current surplus. Oil Minister Mani Said Utaiba of the United Arab Emirates admitted at the conference: "We can't talk about increasing prices because there are too many barrels of oil every day in the market. If we increase the price, we won't be able to sell our oil."

Nonetheless, prior to last week's meeting the 13 OPEC countries were badly split over the level of next year's price. Libya, Algeria and Iraq demanded increases of up to 23%. Libya muttered about raising prices unilaterally or walking out of the meeting. Nigeria, Indonesia and Venezuela, badly in need of more oil income to pay for instant industrialization projects, were making weak requests for an increase of 5% or so. They argued that a boost was needed to make up for worldwide inflation and the dropping value of the dollar, which has cost them 20-c- per bbl. this year.

But Saudi Arabia, which pumps some one-third of all OPEC oil, alone carries the clout to turn production on or off in sufficient quantities to dictate prices. The lesson of last year's split in OPEC ranks, when eleven countries pushed prices higher than Saudi Arabia wanted and then had to pull back after the Saudis increased production and sales, has been learned. During elaborate dances in the shadows over the past seven weeks, several key oil producers, particularly Iran, which had previously been a hawk for higher prices, agreed to follow Yamani.

By the time the ministers' jets landed in Caracas, the freeze of early '78 was virtually set. In his speech to the opening conference, Venezuelan President Carlos Andres Perez made a last desperate attempt to obtain a small increase. He offered a quixotic proposal "for the good of humanity": prices would be increased 5% to 8%, but OPEC's additional profits for one year would be channeled to developing countries that have no oil to help them pay off their $180 billion foreign debt. During a series of bilateral meetings with the ministers the first day of the conference, Perez tried to twist arms. Sheik Yamani even pulled out his worry beads during his talk with Perez.

But Yamani and other ministers politely dismissed Perez's move. To show his displeasure, Yamani that night even developed a diplomatic illness that enabled him to skip the seven-course, two-wine extravaganza offered by Perez. Then, during a long session in the hotel suite of the Venezuelan oil minister after dinner, the 13 OPEC ministers agreed that there would be no increase at least until their next meeting in June. (Officially they failed to make a price decision, but that has the same effect as voting a freeze.) Saudi Arabia is expected to continue pushing for a price freeze through all of 1978.

As welcome as even a temporary halt to oil price hikes will be for Western economies still staggering from past increases, OPEC'S decision offers only a respite at best. After last week's meeting, Yamani said that Saudi Arabia would cut back production until the oil surplus disappeared and intimated that OPEC would then, presumably in 1979, start sending prices higher again. Even the new production in the North Sea, Alaska and Mexico, moreover, will not be enough in the long run to break OPEC'S corner on world oil supplies. All the oil found so far in Alaska, for example, would provide only two years' worth of current American consumption.

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