Saudis offset loss from oil embargo Experts predict drop in prices in early '91

November 04, 1990|By Youssef M. Ibrahim | Youssef M. Ibrahim,New York Times News Service

RIYADH, Saudi Arabia -- Saudi Arabia's oil production surpassed 8.2 million barrels a day last week and is expected to rise to 8.5 million barrels early next year, the highest in a decade, the Saudi oil minister,

Hisham Nazir, said in an interview yesterday.

The rise in Saudi production, along with increases by other members of the Organization of Petroleum Exporting Countries such as the United Arab Emirates, Libya, Nigeria and Iran, means that the estimated loss of 4 million barrels a day from Kuwait and Iraq as a result of the United Nations embargo has already been made up.

But the significance of the Saudi increase is underlined by the factthat virtually all other major producers within OPEC and outside it, including the Soviet Union, Norway and Britain, have in the view of oil experts reached the limits of their capacity.

Coupled with a drop in consumption of about 1 million barrels a day because of the high prices, these developments mean that despite the embargo on Kuwaiti and Iraqi oil, the world supply may be a little more

See OIL, 3A, Col. 1 OIL, from 1A

than it was before the Persian Gulf crisis began in August.

The oil experts said that unless war broke out in the gulf, the additional flow of Saudi oil would by February push prices significantly below their present level of $34 a barrel.

This would presumably result in a drop in the retail prices of gasoline and home heating oil.

"The Saudi increase in production will clearly have a beneficial impact on the market unless something else goes wrong," said John Lichtblau, president of the New York-based Petroleum Industry Research Foundation. "It should push prices down somewhat below present levels."

Oil experts maintain that prices are now so high only because a fear of shortages has produced "a psychological premium." They say the psychological factor has added $5 to $10 a barrel to what the price of oil should be, given the balance of supplies and demand at the moment.

Saudi and U.S. officials expressed confidence that even in the case of war, Iraq would not be able to stop Saudi oil exports, noting that it had failed to halt Iranian exports during eight years of war despite daily bombardment of Iran's oil installations.

The increase in Saudi output has come much faster than expected, and the oil minister said yesterday that production levels over the last three months had been higher than previous official estimates.

"Immediately after the Iraqi invasion on Aug. 2, our production went up from 5.4 million barrels a day to 6 million," Mr. Nazir said. "In September, we reached 7.5, and in October we were at 7.7 million barrels a day.

"Right now we are pumping 8.2 million barrels a day, and I expect next year we will hit 8.5 million barrels a day without major capital expenditures." The Saudi output is 57 percent higher than what it was before the Iraqi invasion.

With this increase, oil experts say, OPEC production will stand at 23.3 million barrels a day by February. Before the gulf crisis, oil experts anticipated that the world would need 24.2 million barrels a day from OPEC this winter. But the near-doubling of crude oil prices since August has reduced consumption by about a million barrels a day, according to the International Energy Agency and independent experts.

In addition, supplies normally held by international oil companiesto be used in winter are at a record high level. This means that demand and supply by the start of the year should be in balance, with a strong possibility that supplies will be in excess of expected demand worldwide.

Saudi oil industry executives said the country planned to increase its output above the "sustainable level" of 8.5 million barrels a day expected early next year.

But they said any further rise would take much longer and would require substantial capital spending and construction work to upgrade the existing network of pumping machinery, gas separation plants and pipelines.

Saudi Arabia is the world's largest exporter of oil and possesses the biggest reserves, conservatively estimated at 250 billion barrels. Recent discoveries near Riyadh, still being assessed, may add 20 billion to 30 billion barrels to those reserves.

Saudi oil industry officials agreed with an assessment by the U.S. military commander in the region, Gen. H. Norman Schwarzkopf, last week that Iraq possessed limited ability to damage Saudi oil exports.

"You've got to remember that during eight years of war with Iran, despite almost daily bombardment by the unchallenged Iraqi air force of all Iranian oil export stations, pipelines, tankers and oil fields, the Iraqis failed to stop Iranian oil exports for a single week," a senior official of the Saudi Petroleum Ministry said.

General Schwarzkopf said that U.S. and Saudi air defenses would make it virtually impossible for Iraqi missiles or the Iraqi air force to cause more than marginal damage to Saudi oil export installations.

In 1981, Saudi Arabia briefly pushed its oil production to 10 million barrels a day, but that level could not now be sustained withoutdamaging the vast network of pumping stations, pipelines and other oil production installations.

Afterward, Saudi production fell dramatically, dropping in 1986 to a low of about 3 million barrels.

Many of the Saudi oil fields and pumping stations were sidelined, and the current rise in output comes from reactivating these.

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