CLASSIFIED INSERT TO TESTIMONY BY DOE PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS GEORGE BRADLEY BEFORE THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES FEBRUARY 18 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00366R000100010035-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: January 4, 2017
• Document Release Date: April 23, 2008
• Sequence Number: 35
• Content Type: REPORT

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9
CONFIDENTIAL
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DOE review completed.
Attach this form to CONFIDENTIAL
material in use. DETACH the form
when material is filed, stored or
dispatched.
CONFIDENTIAL
OMB FORM 68
MAY 67
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CLASSIFIED INSERT TO
TESTIMONY BY DOE PRINCIPAL DEPUTY ASSISTANT SECRETARY
FOR INTERNATIONAL AFFAIRS GEORGE BRADLEY B1:FORE
THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
FEBRUARY 18, 1983
The unclassified version of testimony previously provided will
be used for the open hearing on February 21. The unclassified
version modified with the confidential insert below will be used
for Friday's testimony. Insert follows the last sentence on
page 2 and replaces the current section beginning on the last
line of page 2 and continuing through to the first paragraph of
page 4.
Insert
Tn the immediate aftermath of the OPEC meeting oil companies,
operating on the belief that a price cut was now unavoidable,
began to pull back further, refusing to lift any more crude oil
than was absolutely necessary. To cover customer demands
companies accelerated drawdowns of inventories or purchased oil
on spot markets where it could often be. obtained for some S5-S6
per barrel below official sales prices. The ability of companies
to "go elsewhere" has caused production levels in OPEC and even
in some non-OPEC producers to tumble.
Nigerian production in February is currently projected
by some intelligence sources to be only about .6 MMBD as
compared to 1.3 MMBD in 1982. A number of companies have
reportedly completely halted liftings.
Libya, widely known as one of the so-called "cheaters,"
has seen its production go from 1.8 MMBD to less than 1.0
Mt1BD is February because of pricing disputes with the Oasis
group.
Mexican exports may have fallen to as low as 1.2-1.3
MMBD if February from a record 1.8 MMBD in November
because of lack of customers..
OPEC crude oil production as a whole is now reportedly in
the range of 16.0-16.5 ML'i13D or about 2.0-3.0 MMBD below
last year's level of about 18.8 "MMBD.
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ven~among countries where production and exports have not yet
prices of around 12: per. barrel;.:: The u.K...tioernment, : wnicn nas
cheaper alternative supplies.. In three"cases, the U.S.S R6 JP
Eavvt and the United States have already. produced a cut:in
y"
mounted as-oil companies have threatened to "walk awa to:
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prices $2-$3 per barrel. The threat of being viewed as a
downward price leader, especially after Yamani's comments after
the recent OPEC meeting, has probably been the rain reason they
have not yet done so.
The key to current speculation about a fall in prices centers
around what current market conditions have done to the production
levels of the Gulf producers, in particular Saudi Arabia.
Having watched its production fall to 4.6-4.7 I-IIIBD in January
and perhaps to substantially lower than that in February, Saudi
Arabia has, through its public statements, let it be known that
it is no. longer willing to be solely responsible for supporting
the $34 price. This has led to the widespread belief that they
would cut prices unilaterally, thus precipitating a general
decline in all oil prices.
While it is the current conventional wisdom that Saudi Arabia
and the other Gulf producers are on the verge of a price cut,
there is good-re-a-s-on--to-be-l4e-b.\that this may not in fact be the
There have been indications that the Saudis have been
great reluctance in Saudi Arabia to cut prices even though they
appear to believe such a cut is necessary and would be beneficial'
in the long run. At the present, they still seem to prefer to
maintain a wait-and-see attitude, watching to see how things
develop.
The sources of the Saudi "dilemma" appear to be:
Fear that any unilateral pricing decision will bring
economic and/or political retaliation from the Iranians
who would be directly threatened by such a cut. Saudi
fears have been heightened by direct and indirect Iranian
threats. At the very least the Saudis appear to want to
see how the renewed fighting between Iran and Iraq
evolves.
Uncertainty about the reaction to a Saudi price cut by
other producers, and the fear that such a cut could
set off uncontrolled price competition for customers
which could lead to a price collapse and the destruction
of OPEC.
Reluctance to be perceived as doing the bidding of the
West by lowering oil.
The question, even without the threat of a'-,,pi ice-collapse,
asto whether the Saudis would gain much in the short run
from a price reduction. In fact, there is a strong
possibility;;that producers could be worse off in this-
timeframe.
asy ..y C R .y..~ S1FY'~~ d!.: f. wy;^'YV'S', ~ yam!'
H71 T', E r, I T1 ri
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These factors have, to this point, outweighed pressures for .a.
Saudi price cut. How much longer they will continue to do so
is a matter of conjecture. It must be noted that the Saudis
may be gaining some from the current uncertainty in the market.
On the one hand, the high rate of inventory drawdown that is
occurring at the present is removing much of the inventory
overhang which has depressed prices over the past year. Should
this continue for a period of time, companies could lose much
of their flexibility and would be forced to ;o back into the
market to lift oil from the producers. On the uther hand, the
current market weakness which has been depressing Saudi produc=
tion is also hurting some of those OPEC countries which have
opposed Saudi Arabia. Continued exposure to these pressures
could make these countries more amenable to Saudi desires.
The preferred solution for the Gulf producers still seems to
be one negotiated within OPEC.' Despite the open acrimony
within OPEC after the January meeting, negotiations have
continued between Saudi Arabia and a number of countries
including Nigeria, Indonesia and even Libya. The results of
these negotiations are not clear at the present time.
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