A dispute between several Western oil companies and Kuwait over the price of crude oil has become an important test of the bargaining power of oil-producing nations during a period of plentiful worldwide supply.
Shell, British Petroleum and Gulf so far are refusing to pay a premium of between $2 and $3 above the official base price of $35.50 for the crude oil they have been buying from Kuwait. The Kuwaitis have responded by suspending deliveries to the three companies, their largest commercial customers besides Idemitsu of Japan.
Oil companies have been forced to pay such premiums during oil shortages in the past, but they now believe that a worldwide glut gives them the leverage to fight the practice with Kuwaiti crude, which one industry analyst called "vastly overpriced" because it is a relatively inferior grade of heavy, high-sulfur oil.
One oil industry surce said "the companies are in a relatively strong position because price pressures are not what they used to be. Demand is down, and there is quite a lot of oil around at the moment."
Oil consumption has dropped sharply in many major industrial countries, including the United States, because of economic recession and conservation efforts.
Meanwhile, production has remained relatively high despite the Iran-Iraq war. Saudi Arabia has maintained unusually high production levels to compensate partially for the war's effect on oil supplies, and Iraq and Iran are producing about one-fourth as much as their combined output before the war, according to analysts here.
Kuwait has tried unsuccessfully to persuade Saudi Arabia to reduce its production of 10.3 million barrels a day to prevent an oil glut, but has cut its own output to about 1.5 million barrels a day, according to industry figures. It has been keeping about one-third of it, selling one-third in direct nation-to-nation deals and offering the rest to oil companies.
Under contracts that expired at the end of March, Shell and British Petroleum had been paying Kuwait a premium of $5.50 above the official price for some of this oil.They and Gulf had been buying the rest without a premium under contracts still in force.
But Kuwait informed the three companies late last month that it intended to charge a premium of between $2 and $3 on all the oil it sold them. Shell and British Petroleum have refused, although they are continuing to discuss it with the Kuwaitis, while Gulf has not yet answered, according to industry sources here.
Kuwait moved to put pressure on them by suspending all deliveries until they agree to the higher prices, but industry sources said this may not work.
They contended that the companies could buy the oil at favorable prices elsewhere, while Kuwait may have trouble selling to other customers at the premium it is demanding. They said spot market prices are relatively low now.
Industry analysts here said a failure by Kuwait to enforce its premium-price demand could be a signal that world oil prices are unlikely to rise significantly for at least the rest of the year.
"Anything can happen to disturb the current balance of supply and demand," said one analyst. "but right now the Kuwaitis are living in a dream world. They seem to be programmed only to oil shortages."