Reacting to concerns about falling prices in Great Britain and other non-OPEC countries, the Organization of Petroleum Exporting Countries will meet before the month's end to debate how to counter the nosedive in world oil prices.
The decision by the British to cut oil prices by $4 a barrel has put serious pressure on OPEC to reduce its official $34-a-barrel benchmark price, which sets the level for exports from all its members.
The price slide, which has produced benefits for U.S. consumers, is badly hurting countries that depend heavily on oil exports for their income.
OPEC Chairman Sheik Mana Said al Otaiba, oil minister of the United Arab Emirates, was quoted by the Gulf news agency in Abu Dhabi as saying that "most" members had agreed to attend a consultative meeting. Although he did not say when such a meeting would be, he said it would be by the end of the month.
Oil company officials and industry analysts said yesterday they expect that Saudi Arabia, which holds the key to what OPEC will do, will take steps to stop the downward spiral and to relieve pressures on OPEC's unity that the downturn has produced.
"The $34 price is becoming almost impossible to hold under the present circumstances," said Tor Meloe, chief economist for Texaco. World oil prices "could spiral down very rapidly--a great deal depends on the actions of OPEC," he said. "They're going to have to cut production, and I think they'll change the price," said Meloe.
Oil prices have fallen generally over the past year, with the average price of crude oil produced in non-OPEC countries falling from $38.54 a barrel in January 1981 to $33.79 last week. Since last week, prices have fallen even further, creating a situation that one Department of Energy official called "chaos."
Several factors have helped drive prices down, including conservation and turning to alternate sources of energy. In addition, the recession in the United States and Europe has reduced the industrial need for oil. Still another factor is that the oil companies have been drawing down reserves rather than buying oil.
Besides the cut in prices in Great Britain, which followed a $1.50 cut in early February and reduced the price of its crude oil to $8.25 below its level in January 1981, Egypt has cut the price of its Gulf of Suez crude by $1 to $32 a barrel in its third price reduction in a month.
Last week, Mexico cut prices by between $1.50 and $2.50 a barrel, and Norway is expected to reduce its price in line with the British action.
Cracks are even beginning to show up in OPEC countries. According to the oil journal PIW, as quoted by UPI, Venezuela is holding $2.50 a barrel for its light crudes in escrow, allowing for a possible rebate if OPEC's prices are realigned in the future.
Iran, cash short and desperate for funds to wage its war against Iraq, has cut oil prices three times for a total of $4 a barrel in recent weeks. Nigeria, another OPEC country, will feel enormous pressure from the British price cut, industry officials said.
The British pricing decision seriously undercuts the price of light crude from Saudi Arabia, far and away the biggest oil producer in OPEC. That crude, which competes with North Sea oil, suddenly becomes much less of a good buy.
The Saudis have three major options, said an official of a major oil company, who asked not to be identified. One is to decide "that it's in their best interest to let prices slide to undercut conservation and new supply development so they can hang on to the long-term market," he said, noting that past price hikes have cost OPEC nearly one-third of its market.
Another option is to react with concern to the glut and, because they have achieved a goal of bringing OPEC prices more in line with one another, to "offer an olive branch" to other countries by reducing their production. Saudi Arabia has a ceiling on production of 8.5 million barrels a day but probably is producing closer to 7.5 to 7.9 million barrels a day. The country is close-mouthed about production. Other OPEC countries have cut back considerably--particularly Iran and Iraq, which are at war with each other. Saudi Arabia has indicated it could cut production to 6.2 million barrels a day and still be able to finance its development needs.
Still another option is to cut both production and prices.
"I wouldn't be surprised if the Saudis tried a drastic move to pull the rabbit out of the hat, to get the girl off the railroad tracks," said Albert Anton of Pforzheimer Inc., a securities firm. Anton said he thinks that a major cutback in production might reverse the psychology that is driving prices down and save the $34 price.
One industry official had a warning. Noting that high prices in 1979 and 1980 had produced conservation and a search for new energy sources, he said: "If we get falling prices for a year or two out, we're going to get that same boomerang on the other side . . . We have to be careful people don't become too complacent."