Most American consumers will hardly notice any effect on the prices they pay for gasoline or home heating oil as a result of the latest $2 increase in the cost Saudi Arabian crude oil.
The demand for oil products is down so sharply in the United States and much of the rest of the world, that storage tanks are brimming over. Supplies are so plentiful that prices at the pump have been falling, and refiner and retailer profit margins have been dropping even faster.
A firm Saudi commitment to keep production at 9.5 million barrels a day at least for the remainder of the year means that oil stocks around the world will continue to grow at a seasonally adjusted rate of at least 1.5 million and possibly more than 2 million barrels a day for several months to come, oil industry experts said.
The Saudis did not immediately notify the four U.S. companies buying oil there -- Exxon, Mobil, Texaco and Standard Oil of California -- of the price increase. One company official said the company expects to get the word this weekend, and another suggested it might not apply until Oct. 1.
The four companies import about 1.4 million barrels of oil daily into the United States from Saudi Arabia, or 24 percent of current oil imports.
Despite the pending increase, Texaco and SoCal announced yesterday they are cutting their wholesale gasoline prices by 2 cents a gallon, Texaco in the Midwest and SoCal throughout the country. Four other large refiners -- Shell Oil Co., Phillips Petroleum Co., Atlantic Richfield Co. and Getty Oil Co. -- made similar cuts yesterday.
With most Organization of Petroleum Exporting Countries members charging at least $32 a barrel, and some up to $37, for crude similar to the Arabian light the Saudis have been selling for $28, the four U.S. companies have enjoyed a substantial cost advantage over most of their competitiors. The new increase likely will cut into the profits for the four, analysts said, since it is doubtful they can pass the higher cost to their customers given market conditions.
Both industry and government officials were still uncertain exactly what may have been agreed to this week at the Vienna meeting of OPEC oil ministers. It seems clear that other producing nations at least promised not to try to increase their selling prices, but there were some indications the Saudis expect the countries charging large premiums over the official OPEC ceiling of $32 a barrel to lower their prices.
Some of the four companies buying Saudi oil believe there will be another $2-a-barrel increase in December, bringing the price up to the $32 figure, as part of a continuing effort to unify OPEC prices, a longstanding Saudi goal. However, one Carter adminstration energy official said he doubts another increase would occur that soon unless other OPEC producers explicity agreed to lower their prices at the same time.
The change in market conditions has been dramatic in recent weeks. U.S. producers of crude oil that is not price-controlled are in some cases getting less than the OPEC price for their oil. Spot-market prices for some types of crude oil have fallen in many parts of the world to the point they are also below official selling prices.
Refiner gross margins -- the difference between the cost paid for crude and the price at which refined products are sold -- have fallen sharply since peaking just about a year ago. Meanwhile, a refinery opeating costs have increased substantially, in part because most are being operated far below optimum levels.
According to the Lindberg Letter, which surveys prices charged by retail service stations, the gross margin for retailers has fallen steadily by about 0.4 cents a gallon since the beginning of the year.