Crude Oil Prices Rise Sharply : Spot Traders Gamble on Saudi Production Freeze

The abrupt ouster of Sheik Ahmed Zaki Yamani as Saudi Arabia’s oil minister drove crude oil prices sharply higher Thursday as Yamani’s replacement immediately signaled the Saudis’ desire to fix oil prices at “no less than $18 a barrel.”

While the long-term effect of Yamani’s removal from the world oil stage remained uncertain, oil traders in New York bid up the price of crude for December delivery to $15.04 a barrel from Wednesday’s $13.73, on the gamble that the Saudis are now prepared to freeze production.

It was Yamani’s strategy of boosting oil production in late 1985 that backfired on the Saudis and other members of the Organization of Petroleum Exporting Countries, creating the oil glut that sent prices tumbling from $30 to as low as $10 a barrel this year.

A matter of hours after being named to Yamani’s post, Sheik Hisam Nazer, the longtime Saudi planning minister, called Thursday for an emergency meeting of OPEC’s pricing committee to set the stage for the cartel’s next full-dress gathering on Dec. 11 in Geneva.

In a statement to the Saudi news agency, Nazer said he wants the committee to meet “before the beginning of (December) and to start immediately in fixing prices . . . to raise prices to no less than $18 a barrel.”

Advocated Higher Volume

Yamani had championed the strategy of boosting the share of the world oil market held by the Saudis and other OPEC members, relying on higher volume to offset lower prices. Under that strategy, higher-priced, non-OPEC oil was supposed to be driven from the marketplace, allowing OPEC to raise prices gradually and balance supply with demand. But instead, the increased OPEC production early this year caused a price collapse without significantly spurring demand.

Underscoring the seeming conflict between Yamani and the Saudi government, which is thought to have precipitated his firing, Nazer’s statement noted that fixing prices at $18 was the position taken earlier this month by the Saudi government--but which OPEC observers say was not enthusiastically advocated by Yamani at the latest meeting of the cartel in Geneva.

OPEC managed to drive up prices to $15 a barrel from $10 in late summer with a temporary agreement that modestly limited production. Then, in a protracted OPEC meeting that finally broke up earlier this month, the cartel could only agree on extending a production ceiling through the end of the year. That disappointed speculators, and prices fell to about $13.

‘Interested in Revenues’

“Now, it appears the Saudis are more interested in revenues than in market share. That’s what the market said today,” said futures trader Peter C. Beutel of Elders Futures Inc. in New York. Prices of oil company stocks also rose broadly on the New York Stock Exchange.

But despite the first-day interpretation that the Saudis will now join with Iran and other OPEC advocates of a production quota system that would reduce the glut and boost prices, many analysts remained sharply divided over the direction the Saudis and OPEC might now take with the influential Yamani out of the picture.

Even as Nazer called Thursday for price-fixing and production quotas, the suspicion persisted among some experienced Middle East observers that the Saudis will continue to be tempted to boost production to bring more oil revenue into the government’s depleted coffers.

Oil Revenues Decline

William B. Quandt, senior fellow at the Brookings Institution and former head of the Middle East desk on President Jimmy Carter’s National Security Council, estimated that the Saudis will receive a paltry $18 billion in oil revenue this year--half that of a year ago and less than one-fifth the $100 billion that the prolific Saudi oil fields generated in 1981.

Whatever conflict may have developed over production levels, Quandt said, “Yamani was not a decision maker. By and large, the decisions have been made by the royal family. And there will still be the temptation to quickly increase revenue by raising output, even though that sets the stage for another price collapse early next year.”

George Keller, chairman and chief executive at San Francisco-based Chevron, said Thursday’s rise in prices for contracts to deliver oil in future months was not significant. He said that without Yamani’s moderate, long-range thinking, there is a 60-40 chance that the Saudis will boost rather than restrict production--sending prices down rather than up.

Keller, who negotiated routinely with Yamani in the 1960s and early 1970s when both sat on the board of Aramco, the joint venture of four U.S.-based oil companies that then controlled oil production in Saudi Arabia, said Yamani’s oil knowledge and personal relationships with other OPEC ministers served the fractious cartel well during his 24-year tenure as oil minister.

“There is no one in the kingdom who knows oil like Yamani does or who is so knowledgeable about all the players, who has personal relationships with the other dozen people in the room,” Keller said. “On the other hand, if they have a new position to sell, for example that they’re willing to hold production down, then a new man perhaps could carry the message more easily than Yamani.”

Missing Influence

Daniel Yergin, an energy authority who heads Cambridge Energy Research Associates in Cambridge, Mass., said Yamani’s influence will also be missed as OPEC presses its effort to persuade non-OPEC oil producers to limit production.

“He’s personally been carrying out a lot of oil market diplomacy, such as with the Norwegians,” Yergin said. Norway is one of the few major non-OPEC producers to agree to withhold oil from the market, though only temporarily, to help rein in the current oversupply.

Yamani himself remained out of public view Thursday and there remained no official explanation for the firing, but some Middle East experts expressed surprise that it didn’t happen sooner.

Protege of Faisal

Although Yamani was originally a protege of King Faisal, who was said to have given him unusual latitude in setting petroleum policy for the Saudis, the former oil minister nonetheless wasn’t a member of the several-thousand-member royal family. After Faisal’s assassination in 1975, Yamani became less a policy-maker than an executor of the policies of King Fahd’s governments, not always with enthusiasm, according to Saudi observers.

“The real oil minister is the king,” said Robert G. Neumann, a former U.S. ambassador to Saudi Arabia and now a senior adviser at the Center for Strategic and International Studies at Georgetown University. “Oil policy is made by the king. He consults a small group of princes.”

Yamani’s high profile around the world was “a source of irritation” to the royal family, Neumann said, which might help explain the government’s choice of Nazer as a successor. At this point, however, the Saudis are describing Nazer as the acting minister of petroleum and mineral resources until a permanent choice is made.

Graduate of UCLA

Nazer, a graduate of UCLA who maintains a home in Beverly Hills, is a commoner like Yamani but is said to have a subdued style more to the liking of the royal family. Like Yamani, he is pro-Western in attitude and travels easily in international circles.

Quandt said the choice of Nazer might also be reassuring to Saudi business interests at a time of plummeting government revenues because, as planning minister, “he is associated with an expanding, high-spending profile. He moves easily in the world of finance.”

Times staff writer Norman Kempster in Washington contributed to this story.