THE THURSDAY, MAY 28, 1981 Price freeze for oil

Press, 28 May 1981, Page 16

THE THURSDAY, MAY 28, 1981 Price freeze for oil

The price of oil rarely brings cheer but the decision by the Organisation of Petroleum Exporting Countries to freeze prices until: the end of the year should at least not add to the gloom. New Zealand may pay rather < more for oil for two reasons. One is the ( constantly slipping value of the New ] Zealand dollar. This may be offset by the foreign exchange holdings that Newi Zealand has at any particular time. The other is that, although prices will be frozen. Saudi Arabia is at liberty to increase its prices by $4 a barrel. At present Saudi Arabian oil is the cheapest on the market at $32 a barrel for light j crude. The next lowest price is $36 a J barrel. Saudi Arabia appears determined to j observe the price freeze voluntarily and! may do so. ’The point is important to New I Zealand because, of all the oil imported by(i New Zealand. Saudi Arabia supplies 37 perjj cent — 94,000 tonnes out of a total 256,000, tonnes. O.P.E.C. s decision appears to be the. result of a serious division within the ■■ organisation. Saudi Arabia has long wanted , a unified world price. It did not get it at' the meeting just completed in Geneva.*} Saudi Arabia, by far O.P.E.C.s biggest; producer, has forced the issue both saying that it will hold its prices and byJ refusing to give an undertaking to production. The present world glut of oilr has been brought about mainly by the? ready availability of Saudi Arabian oil; the | laws of supply and demand have worked to hold back increases in prices. The initiative taken by other O.P.E.C. members to reducej their production by. 10 per cent is anf attempt to reduce the world supply and-; push up the price. The trial of strength and purpose between Saudi Arabia and other, members of O.P.E.C. may prove to be the, most important feature of the meeting that has just been held. * I The reduction in the output of oil is unlikely to bring about a shortage; production and consumption will come closer together. The other oil producers will not like taking this action because it means that they will earn less because

& they are selling less for the same price, | and also because inflation means that the money they earn 'will buy less. For with big development projects lithe drop in earnings will be particularly For Iran and Iraq, who are IjStill fighting each other, if somewhat it will mean fewer dollars to g support their war. > > Saudi Arabia is less bent on rapid k modernisation than are various other I O.P.E.C. members and has huge oil F reserves as well as the capacity to S increase or decrease production within | wide limits. If it wished, Saudi Arabia y could increase its output of oil sufficently £ to make up for the reduced production of | the others. Saudi Arabia believes that the | level of production, is a matter for the | individual country to decide, not for | O.P.E.C. Nevertheless, it has shown a keen’ | appreciation of how to get its own way by | varying its production levels. The decision | by most of the O.P.E.C. members to reduce | production may be the beginning of a bid |to see just how far Saudi Arabia will go. Every increase in the price of oil hurts S the developed countries; and hurts even £ more the developing countries which have | little or no oil. Had Saudi Arabia not taken $ the attitude that it is taking, the price g would almost certainly have been | increased. Both the developed and the a? developing countries which import oil have come to depend heavily on the attitude of ~ the Saudis. The United States has already shown itself to be aware of the key position I held by Saudi Arabia and it is apparent ’ that Saudi Arabia, one of the most f conservative, and, in some ways, one of the i most primitive countries in the world, has ? much of the world in its debt figuratively | and, considering Saudi investments, in ? some instances literally. Saudi Arabia V appears to have its own reasons for steering the pricing procedures within O.P.E.C. Those who see the dependence of much of the world on Saudi Arabia will wonder if there is another price to be paid . in time for the price freeze engineered by the Saudis.