Prices of some crude oils appeared to stabilize Wednesday after heading toward $15 a barrel, the lowest since the late 1970s, in the market war between OPEC countries and non-OPEC producers.
Crude oil prices have dropped by more than one-third since the year began, but some analysts say they doubt that U.S. gasoline consumers will see a similar decline at the pump.
The slide intensified after a meeting of the Organization of Petroleum Exporting Countries broke up without devising a strategy to defend the cartel's share of the oversupplied market. Traders also reacted to reports that Saudi Arabia, Kuwait and the United Arab Emirates, among the richest OPEC members, would inundate the world with cheap oil to force non-members Britain, Norway and Mexico to curtail production.
"Arabian producers have effectively decided they are going to sacrifice the poorer members of OPEC on the altar of market share," said Peter Beutel, assistant director of Rudolf Wolff Energy Futures, a New York commodities futures trader. "They're out to prove to Britain and anybody else, 'if you're not going to cooperate, you're going to be destroyed.' "
More Cuts Expected
There were new splits in the cartel Wednesday as diplomatic and oil industry sources reported that three militant OPEC members, Libya, Algeria and Iran, have agreed informally to reduce their market price for oil by $4 a barrel to $26.
While that still is well above prices in the open market, the sources said the three countries have long granted unofficial and usually secret discounts below the OPEC price. "The decision mainly serves to lower the departure point for the discounts," one source commented.
On the New York Mercantile Exchange, the March delivery price of West Texas Intermediate, the best-known U.S. crude, was quoted at the $16.20-a-barrel level in early trading Wednesday after plummeting to $15.44 a barrel Tuesday. On Monday, it closed at $17.36.
In Europe, Britain's Brent crude traded Tuesday for $15.50 a barrel in the open market, the lowest this decade. It recovered to the $16.30-a-barrel level Wednesday based on a rumor that the oil ministers of Norway and Britain planned a special meeting, but the rumor was later proved false.
In Tokyo, Dubai crude from the United Arab Emirates, the best-known oil in Japan's market, was quoted at $14.50 a barrel Wednesday, compared to $17 a barrel last week.
Conoco, a unit of Du Pont, said Wednesday that, to meet competition, it was cutting the price it will pay in contracts for purchasing West Texas Intermediate crude by $2 a barrel to $21.50, its sixth cut this year. Other U.S. oil companies also have been slashing their posted prices.
The slide has deeply divided OPEC, which once got $40 for a 42-gallon barrel of oil when the 13-nation group dictated prices in the 1970s. It also has hurt Third World oil exporters, who rely on oil income to pay off loans.
Many analysts say the decline will boost the economies of the United States, Japan, Western Europe and other industrialized oil importers by restraining inflation.
But some reject suggestions that lower oil prices will lead to gasoline price wars like those of two decades ago. The prices for long-term contracts on oil remain well above the $20-a-barrel level, much higher than the spot market and near-term futures prices.
"The consumer can be confident there will be a fall in price, but it will be almost insignificant compared to the drop in other sectors," said Daniel Lundberg, publisher of the Lundberg Letter, a weekly publication based in Los Angeles that reports on gasoline prices.
Based on his most recent nationwide survey of Jan. 24, retail prices fell 1.5 cents for all grades of gasoline while the wholesale price dropped 3.3 cents a gallon.