A drop in free world oil demand coupled with a 1-million-barrell-a-day increase in non-OPEC oil production this year will cut demand for OPEC oil by 2 million barrels a day or more, Deputy Energy Secretary John Sawhill said yesterday.
"Under normal market conditions (this) supply and demand scenario for 1980 would have resulted in some price reductions," Sawhill told the Senate Foreign Relations Committee. "However, no significant softening in world oil prices is expected because a number of OPEC countries have announced production cutbacks for technical or economic reasons."
Nevertheless, he continued, "The outlook for the 1980s is therefore for temporary relief from the price pressures experienced in 1979, barring a severe supply interruption or cutbacks. . . ."
This year's temporary supply cushion was a significant factor in the United States' failure this week to get the member nations of the International Energy Agency in Paris to agree to new tighter targets for oil imports this year.
Sawhill turned aside questions about the refusal of the other industrial nations to go along with the U.S. proposal for reductions in the oil import targets set at last year's Tokyo economic summit, saying that "in any undertaking of this kind there will be differences of opinion . . . I feel we have made major progress (and) I would expect that at the next ministerial meeting, which will occur in May, that further progress will be made."
Some other administration officials were less sanguine, however.
The United States wanted the industrial nations to accept the same percentage cuts in the targets set at Tokyo and later worked out on a country-by-country basis for the entire common market, many members of which were not represented in Tokyo.
A number of other nations, including West Germany, objected on several grounds, ironically the fact that the latest round of OPEC price increases, which are having a larger effect on oil product prices in the United States in percentage terms, would tend to reduce consumption here more than in other countries, administration sources said. In the past, many other industrial nations have been highly critical of the U.S. refusal to tax oil productions, especially gasoline, more heavily in order to cut consumption.
Some of the other nations also argued against lowering the present targets unless they were to be cut to the point they would actually put a lid on expected imports this year. Because of higher oil prices and slower economic growth, virtually all of the industrial nations expect to be below their target for imports in 1980.
The United States apparently was reluctant to consider cuts that large since imports here will be heavily affected by cyclical factors, including the recession forecast by administration economists.