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To: Bobby Yellin who wrote (30098)	3/16/1999 9:06:00 AM
From: Alan Whirlwind	Read Replies (1) \| Respond to of 116764

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To: Bobby Yellin who wrote (30098)	3/16/1999 4:25:00 PM
From: goldsnow	Respond to of 116764

ANALYSIS-Saudi opts for pragmatism to lift prices 11:48 a.m. Mar 16, 1999 Eastern By Michael Georgy DUBAI, March 16 (Reuters) - OPEC power Saudi Arabia, once awash in petrodollars, has chosen to sacrifice oil output in a pragmatic attempt to boost petroleum prices and revive its battered economy, analysts said on Tuesday. A supply restraint deal hammered out with other producers last week bears the hallmark of a more flexible oil policy influenced by the authoritative figure of Crown Prince Abdullah, the country's heir apparent, they said. The kingdom's decision to abandon its long-cherished output quota of eight million-plus barrels per day (bpd) shows a fresh emphasis in Riyadh on market realism rather than commercial rivalry, they said. ''In Saudi Arabia, it used to be a prerogative to be cautious. The kingdom can no longer afford that. It has to be creative and accommodating. There is a sense of urgency,'' said Nawaf Obaid, visiting fellow at the Washington Institute for Near East Policy. ''There are grave economic conditions. The Saudis had to give and take,'' he added. Saudi Arabia, which has lost billions of dollars in revenue since the oil market plunged into crisis last year, is spearheading a price rescue pact with a 585,000 bpd cut under a deal reached in The Hague last week. The agreement, the third such attempt to rescue prices in 12 months, came after a flurry of intensive Saudi oil diplomacy and secret negotiations with OPEC rival Iran. Oil markets were focused on a Saudi dispute with Iran over the baseline from which Tehran cut oil output under a previous OPEC pact. For months it seemed the Saudis would not budge. Then top politicians from both sides, most notably Crown Prince Abdullah, running the Saudi government day-to-day, stepped in and a deal was hammered out recently in secret talks in Riyadh. The move was the prince's first reported hands-on involvement in the management of the country's OPEC policy, analysts said. The move underscored intense economic pressures on the kingdom to soften its demands for compliance with previous output cut agreements and instead act swiftly to rescue prices. ''This is a pragmatic, realistic approach,'' said a Gulf analyst familiar with Saudi oil policy. There are overwhelming reasons for the Saudi government, relying on crude sales for three-quarters of its revenue, to be pragmatic. For every dollar drop in the price of a barrel of oil, Saudi Arabia loses about $2.5 billion a year. Low oil prices have put Saudi finances in a stranglehold, forcing the government to slash spending by ministries and state agencies by 10 percent last year. This year the government announced an austerity budget, forecasting a hugely increased deficit of 44 billion riyals ($11.73 billion) on revenue of 121 billion riyals. Facing up to the grim economic outlook, Crown Prince Abdullah has become more innovative than other Saudi leaders as he tries to revive oil prices. A Gulf source said producers viewed the output cuts as a quick and effective instrument to raise revenues, saying exporters could reap significant oil price rewards for making the production sacrifices. But the scramble by Saudi Arabia, the world's biggest oil producer and exporter, to lift oil prices has its risks. Under The Hague pact, Saudi Arabia's quota will fall to 7.438 million bpd from April 1, breaching the beloved eight million-plus bpd quota it has enjoyed for most of this decade. A Gulf Arab analyst familiar with Saudi policy said that the eight million-plus level was sacred ''in the eyes of the beholder,'' although others said the willingness to produce below that level was significant. ''It's a total change of policy for Saudi Arabia,'' said Roger Diwan of Washington's Petroleum Finance Company (PFC). ''They've accepted going below the eight million bpd level and with Iraq coming back into the market it's difficult to know how they can get back up there again,'' he added. Saudi Arabia is said to be targetting $18-$19 a barrel for benchmark Brent, but the long-term health of the market hinges on producers' continued compliance with cuts if these prices are secured. ''The Saudis were between a rock and a hard place because they needed revenues. They had to go for another big cut,'' said Leo Drollas of the Centre for Global Energy Studies in London. But, he said: ''There are two major risks. One is they (producers) won't deliver the amount of cuts that are on paper. The other is that when you raise oil prices you give an infusion of blood into non-OPEC states. They can start opening their oil taps.'' ($1 - 3.75 Saudi riyals) ((Gulf newsroom, 9714 607 1222, fax 9714 626982, dubai.newsroom+reuters.com)) Copyright 1999 Reuters Limited.