Nations to cut output of oil Saudi Arabia, Mexico, Venezuela head effort to rein in production

Others pledge cooperation

Cutbacks are likely to contribute to rise in prices at the pump


Saudi Arabia, Venezuela and Mexico, in a surprising show of cooperation, said yesterday that they would cut crude oil production and had received pledges from other countries to make similar cuts in a move that is expected to reverse the sharp decline in oil prices.

The cutbacks are likely to contribute to a jump in gasoline prices, which have fallen below $1 a gallon in some parts of the United States.

Oil industry analysts said the agreement was significant because Saudi Arabia, the world's largest oil exporter, and Venezuela, one of the largest, were leading a unified effort to rein in production. Until now, each country had been waiting for the other to cut its oil output first.

Moreover, analysts said, Mexico's unusual role as a leader in this effort demonstrated a broad commitment among many oil-producing countries to restrain production to raise prices. Mexico, unlike Saudi Arabia and Venezuela, is not a member of the Organization of Petroleum Exporting Countries and is not subject to the production quotas the group sets.

Oil prices have fallen sharply from the $23 range since October, reaching a nine-year low of $12.80 a barrel on the New York Mercantile Exchange last week before ending at $14.61 for the most active futures contract. In early trading today in Asia, however, oil prices rose to $16.50 a barrel.

If Saudi Arabia, Venezuela and Mexico succeed in their effort to reduce oil production sharply, "we could see crude oil prices go up by $3 to $4 a barrel," said Ann-Louise Hittle, the director for world oil at Cambridge Energy Research Associates, an energy consulting group based in Cambridge, Mass.

Kevin Lindemer, a senior director at Cambridge, said gasoline prices at the pump would rise by about 10 cents a gallon in a month if oil prices rose by $4 a barrel and remained at that level. The rise at gasoline stations would come just as Americans increase their driving with the improving spring weather.

Some previous efforts by OPEC to restrain oil output have failed because its members have cheated on production quotas. But the oil ministers of Saudi Arabia, Venezuela and Mexico seemed confident yesterday that they would be able to join with other countries, including those who are not members of OPEC, to cut oil production by 1.6 million to 2 million barrels a day from the current worldwide production of about 75 million barrels a day.

They said that their countries and others had already pledged cuts of as much as 1.1 million barrels a day and that they expected to get commitments of even bigger reductions in the next several days.

The agreement was reached in talks that began Friday in Riyadh, Saudi Arabia, and continued over the weekend mainly between Ali Naimi, the oil minister of Saudi Arabia; Luis Tellez, the energy minister of Mexico; and Erwin Arrieta, the oil minister of Venezuela.

Cambridge's Hittle said that for prices to rise significantly, the three nations have to reach their goal of cutting production by 2 million barrels a day and demonstrate the discipline to maintain those cutbacks for the foreseeable future.

Hittle said that there were about 2 million barrels a day of surplus production in the world during the first three months of this year and that cuts of this magnitude would eventually consume that oversupply.

John Lichtblau, chairman of the Petroleum Industry Research Foundation, a research group based in New York City, said nations that pledged to cut production will be under great pressure to abide by the cuts.

"If they pledge and play games, then the market will lose total confidence in their ability to maintain production curbs," he said. "Then they would all be worse off."

Mexico's Energy Ministry said yesterday that it had instructed Pemex, the huge Mexican oil company, to cut exports by 100,000 barrels a day.

The ministry also said that Venezuela had agreed to cut exports by 200,000 barrels a day and that Saudi Arabia would cut exports by 300,000 barrels a day.

The three countries did not identify the other oil producers that had pledged to join in the cutback. But Kuwait, Nigeria and Indonesia were among the countries reported to have promised decreased exports.

Many industry analysts had predicted that the economic pain from the sharp decline in oil revenues would eventually force oil producers to curb production.

Pub Date: 3/23/98

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