World oil prices are beginning to tumble in the face of building stocks and low demand.
Mexico was forced this week to slash its crude oil prices by $4 a barrell, or more that 10 percent, because of the worldwide crude oil glut. Iraq cut its price by 57 cents a barrel yesterday. And in the United States, Standard Oil Co. of Ohio lowered the price change affects approximately 10 percent of the oil produced in this country.
There were also unconfirmed reports that Libya might be about to lower its prices by $4 a barrel. Libyan oil is now prices at more than $40 a barrel, the highest in the Organization of Petroleum Exporting Countries. Industry observers expect any significant change in official OPEC selling prices will not come before July.
Also, Husky Oil Co. this week dropped its posted price -- the price at which it will buy crude oil from producers -- by $1.50 a barrel in the Rocky Mountain region. Earlier this year most such posted prices in the United States fell by about $2 a barrell to about $36 for an average grade of crude.
The declines in crude costs should assure that gasoline and heating oil prices at least do not rise in coming months and open the door to a drop in retail prices.
Worldwide oil consumption has dropped sharply in the wake of major price increases of the last two years. U.S. oil use, for instance, fell nearly 7 percent in the first five months of this year compared to 1980. And use in 1980 had dropped by more than 1.5 million barrels a day to 17 million barrels, the lowest level since 1975 and lower than 1973.
Buyers of Mexican crude in the United States and elsewhere had brought intense pressure on Mexico to lower its prices because the purchasers are unable to make a profit refining and marketing products made from it. The new prices range from $28 to $34.50 a barrel depending upon quality of the crude.
With world production at least 2 million to 3 million barrels a day greater than current use and oil stocks bulging, spot market prices have been slipping since the beginning of the year. As a result, refiners have been cutting purchases around the globe. U.S. oil industry officials said Pemex apparently hops the price cuts would cause buyers who had reduced their purchases in Mexico to reinstate the lost volumes.
Counting the higher cost of transporting oil from the Persian Gulf to the United States the big cut by Mexico means its oil will cost roughly the same as that of Saudi Arabia, the largest supplier of crude to this country.
"It's the first signal of what's ahead among the high-priced producers," said Marshall Thomas, markets editor of Patroleum Intelligence Weekly, an authoritative industry newsletter.
Other crude oil producers, particularly Libya, Algeria and Nigeria, all of which are still selling their high quality crude for $40 a barrel or more, are under similar pressure. Such crude, from which larger quantities of gasoline can be made, is going in spot markets for $5 or $6 a barrel less than the official price, and spot prices are steadily eroding.
Mexico's move, however, startled some industry officials both because of the size of the reduction and because Jorge Diaz Serrano, director general of Pemex, the government owned oil company, had said less than a week ago that Mexico would not alter its prices.
OPEC, meeting in Geneva, agreed to leave unchanged its official price of $36 for its so-called marker crude, Arab light, while allowing members to charge up to $5 a barrel more if they wish. Most OPEC members also agreed to a 10 percent cut in production.
But Saudi Arabia, which is pumping about 10.3 million barrels out of the approximately 24 million barrels produced daily by OPEC, did not agree to change its price of $32 for Arab light or to cut its output. Industry experts said a 10 percent reduction in output by other OPEC members amounted to little more than an official acceptance of current reality. Because of high prices most countries are selling less than they wish anyway.
Observers suggested that a shift in offical prices charged by OPEC members, if any occurs, probably would not come until July since most purchases are contracted for on a quarterly basis. The cut in Iraq's price took the form of a reduction in the premium it charges for oil delivered by pipeline to Mediterranean ports.But since that is the only route for Iraq's oil exports at present, it amounted to a general cut in its oil price.
Gulf Oil Corp., a major buyer of Nigerian crude, is pressing that country to trim its $40 price for Bonny Light oil, but Gulf officials said yesterday Nigeria has yet to agree.
An expectation that the British National Oil Co. would have to lower the price set for North Sea crude, which is unofficially linked to the Nigerian price since the two crudes are similar and compete in the same markets, caused a drop in the value of the British pound on foreign exchange markets.