THE FLEXIBILITY OF SAUDI ARABIAN OIL PRODUCTION THROUGH 198

Saudi Arabia's claim to the role of residual supplier was essentially undisputed between 1973 and 1978. The data of this study reveals, however, that the Kingdom's ability to act as sole residual supplier will begin to erode as early as 1981, and that by 1983, when the Kingdom reaches its probably maximum production capacity (14 mb/d), oil revenue needs will render it impossible for Saudi Arabia to hold back oil production sufficiently to balance supply and demand for OPEC crude. This will be so regardless of the price of OPEC crude (in a probable range from 10 to 40 dollars per barrel) and at any value of Saudi oil revenue need between that of the high case need and the low case need projected by this study.;Resonable expectations for the future include the following: (1) assuming that Saudi productive capacity is frozen at 14 mb/d, any increase in production beyond what that can supply will have to be provided outside Saudi Arabia; (2) that as Saudi Arabian oil revenue need continues to rise and with it oil production need, the demand level at which surplus capacity, and thus its leverage, will be depleted will become lower and lower; (3) that unless non-Saudi productive capacities also become frozen, there is little hope that in the long run Saudi Arabia can bear much influence as a residual supplier, at least not independently; non-Saudi OPEC members will have to absorb a greater share of cutbacks; (4) that Saudi Arabia might temporarily delay loss of power in OPEC as well as construct the basis of its future economy by decreasing its oil revenue need; (5) since Saudi Arabia in its role as residual supplier both opposed oil price increase and expanded its own oil output to relieve shortages or create oversupplies, thus allowing the market to restrain prices, if the demand on OPEC crude does not decrease substantially and if most OPEC members decide to conserve their oil for the long run, rising oil prices will add to the deficits and inflation of the oil importing countries of the world.;The rate of which Saudi Arabia loses its hold on the position of residual supplier and thus its power to control oil prices will be determined by future demand on OPEC crude, by Saudi oil revenue need, and by both OPEC and Saudi production capacities.