The best news for most consumers this year has been the unexpected break in energy price inflation, which most analysts predict will continue well into 1982.
The average retail price for all grades of gasoline was just over $1.34 a gallon last month, down about 4 cents a gallon since February. Home heating oil prices have also dropped somewhat from their late winter peak, but they are still up roughly 25 cents a gallon in the last year, about twice as much the jump in average prices at the pump for gasoline.
Meanwhile, a weighted average of world crude oil prices has dipped from a high of $35.53 a barrel in February to $34.13. Prices of some types of crude, such as the high- quality, light oil produced by Nigeria, have tumbled by $4 or more from their $40 highs.
All of this good news is the result of a massive drop in oil consumption in most countries in response to the huge price increases of 1979 and 1980 and the economic recessions in several industrial nations. Oil use in the United States, for example, dropped 8.2 percent in 1980 and is down another 5 percent so far this year. Declines have been even greater in Japan, West Germany and the United Kingdom, where prices have risen faster than in the United States.
As oil consumption fell here, so did the need for foreign oil. Oil imports are down about 20 percent so far in 1981. About 6.5 million barrels of crude and refined products were imported daily in the first eight months of 1980, and that figure has fallen to about 5.2 million barrels this year.
These developments have OPEC fighting for its organizational life. For the first time in its history, a member, Nigeria, cut an official selling price. Libya and Algeria, which have refused to follow suit, have watched their oil exports and revenues plummet. Now their remaining customers are threatening to walk away from their contracts if prices are not cut. Iraq and Iran are in the same boat.
The head of Mexico's state-owned oil company saw the handwriting on the wall and cut his country's export price by $4 a barrel, and was fired for his trouble. His successor tried to raise the price by half that amount and buyers stopped buying. After prices were rolled back again, and a new sale made to the U.S. government of its strategic petroleum reserve, Mexico was able to boost exports once more.
Beginning this month Saudi Arabia dropped its production from about 10 million barrels a day to 9 million, and spot market prices for its oil nevertheless continued to fall. The four American companies that buy most of Saudi Arabia's oil -- Exxon, Texaco, Standard Oil of California and Mobil -- are awash in it.
World-wide, oil inventories are falling but still remain far above normal. Oil stocks are so large that finding storage facilities is a problem, with many companies resorting simply to keeping the oil at sea in tankers. With interest rates at near-record levels, the cost of holding inventories has risen so much that companies are anxious to cut back, which in the short run puts that much more downward pressure on producers.
Industry analysts expect the Saudi production cut to make little difference to the market since if there is a demand for more oil several other producers would love to fill it. Total OPEC production is running close to 19 million barrels a day, down from more than 30 million during part of 1980. Even with the war damage to Iran and Iraq, a reduction in production ceilings in Kuwait and elsewhere, some analysts think OPEC members other than the Saudis would collectively like to sell as much as 4 million barrels a day more than the market currently allows.
It will take some powerful changes to turn the market around. Forecasters are uncertain whether oil consumption will continue to fall once economic growth resumes in the United States and other industrial nations. They simply don't know whether most of the consumer response to higher prices has already been felt or whether it will continue to hold down use even in an economic recovery. Gasoline consumption, at least, is certain to fall as the fuel economy of new cars continues to increase rapidly.
Electricity prices should continue to rise faster than inflation generally, and natural gas prices likely will rise much faster as more and more natural gas becomes free of federal price controls. A cabinet council has recommended that President Reagan ask Congress to decontrol all such gas by 1985. With the sudden urgency of getting another round of spending cuts through Congress in order to hold down the federal budget deficit, Reagan may defer action on the proposal for some time.
Even if natural gas is decontrolled on that sort of schedule, an analysis by Data Resources Inc., an economic consulting firm, indicates that American households will be spending a smaller proportion of their disposable incomes for energy in coming years. (See chart)
After jumping more than 20 percent in each of the last two years, an average household's energy bill is expected to rise only 5.2 percent this year, to a total of $2,187, DRI predicts. The increase for 1982 will be even smaller, 3.5 percent.
At the same time, paying that energy bill took 9 percent of the household's disposable income in 1980, a figure DRI forecasts will drop to 8.3 percent next year.