Breaking Rank

In the frequently murky realm of global oil prices, even the offhand remarks of Saudi Arabian Oil Minister Ahmed Zaki Yamani can create an avalanche of rumor and speculation. Last week the energy industry worldwide was abuzz over Yamani's latest actions. With an OPEC meeting scheduled for Oct. 3 in Vienna, the mercurial minister let it be known that he had entered negotiations that could lead to lower Saudi Arabian crude prices for some customers. The move was seen by many as evidence that prices of the hard-pressed OPEC cartel might be on the verge of cracking. Said John Lichtblau, president of the Petroleum Industry Research Foundation: "The era of official prices is ending."

The Saudi talks with customers focused on a complex "netback price" arrangement, under which sellers effectively charge the market rate for oil rather than the officially posted price. As a rough rule of thumb, the system could net the Saudis $2 to $2.50 less than the established OPEC price of $28 per bbl. While Middle East oilmen could not confirm last week that the Saudis had signed any such agreements, trade sources elsewhere said that the U.S. oil giants Exxon, Mobil and Texaco would buy some crude under the discount system.

Energy-industry insiders saw the Saudi negotiations as an effort by Riyadh to pressure the rest of OPEC's 13 members into halting the now common practice of selling below official prices and exceeding their production quotas. Said a Japanese oil trader stationed in the gulf region: "First and foremost, this netback scheme is a warning to OPEC and non-OPEC oil producers that they must all take coordinated action or the Saudis will go further." As if in confirmation, Yamani warned that a ruinous price war could develop by next spring unless OPEC members stuck to official quota and price agreements and other producers restricted their output.

If the Saudis are discussing netback agreements, they are not offering them to all customers. When Japanese traders recently tried to negotiate such deals for themselves, they were told to pay the official $28 price. "We would be very happy to buy at the netback price," said a source, "but they will not let us." As a result, the Japanese are gradually shifting their oil purchases from Saudi Arabia to other producers, like Iraq, who are offering deep discounts.

For now, the main beneficiary of any Saudi price cuts will be the Riyadh treasury. While lower crude-oil rates will mean fewer dollars per bbl., they could trigger an increase in sales. That would pump badly needed cash into a nation that has seen its foreign currency reserves drop by some $20 billion in the past year, to less than $100 billion.