A major new drop in world oil prices could precipitate a second round of international financial crises in the months ahead, Secretary of the Treasury Donald T. Regan said yesterday.
Regan, in an interview with several reporters, expressed a greater degree of concern than has been heard from most administration officials in the past about the negative effects of such an oil price drop.
"We're not out of the woods at all," said Regan about the state of the world economy, saying the situation is "still precarious." He said "we hope there won't be a second wave" of financial crises but that this could occur if economic recovery in the industrial countries is not quick enough, or if there is "a major softening" of oil prices.
A Treasury official, who asked not to be quoted by name, said the "danger point" for oil prices is "somewhere in the $22 to $26 per barrel range."
The current international price, according to Treasury estimate, is about $28.5 to $29 per barrel. This is down from $34 per barrel for benchmark Saudi Arabian light crude a little more than a year ago, before the severe slide in OPEC prices.
The reasons for Regan's concern, reporters were told, is that a major new price decrease would cause severe financial problems for such oil producing countries as Nigeria, Venezuela and Indonesia. Even Great Britain could be affected, in the reckoning of some officials.
A continuing oil price slide could even have some adverse impact here, in the view of the official who explained the Treasury view to reporters. This is because the United States exports some oil, and the U.S. Treasury benefits from windfall profits taxes arising from oil revenues.
Mexico is also a problem area, the Treasury official said. Yesterday the Mexican state petroleum monopoly, Pemex, said it will maintain its price for premium light crude at $29 per barrel through May and probably through June.
The Treasury official acknowledged that major oil importing countries would tend to gain more than they lose from a further slide in oil prices. But this point was made in passing, rather than given the main emphasis as was the case in administration statements earlier this year.
The likelihood of new declines in oil prices was not addressed in the Treasury meeting with reporters. However, the impression was left that price cutting is rife among financially-strapped oil producers and that a major increase in industrial demand is necessary to head off new price declines.
According to Regan, the national leaders who will meet President Reagan at the Williamsburg summit late next week will be asking for assurances that the United States will do its best to bring about a strong and sustained economic recovery.
A common international resolve along these lines would be a touchstone of a successful summit, Regan said.
Meanwhile, Brazil's central bank governor Carlos Langoni met Deputy Treasury Secretary Tim McNamar yesterday afternoon in Washington. Brazil is desperately short of cash, as bankers have not provided it with all the money they promised, but sources said that Langoni had not put in a request for a loan from the Treasury. The central bank governor is in town to talk with officials of the International Monetary Fund.
Brazil is having difficulty in meeting the conditions laid down by the IMF in exchange for its loan. It is supposed to satisfy these before it can draw the next part of the loan. It is now close to $1 billion behind in foreign payments, and some sources say the nation may try to raise a new medium term loan to cover this.
Major international banks are planning a new push to get regional banks to provide more short-term money to Brazil, bankers said yesterday. They intend to send telexes to the 400 to 500 banks around the world that have money loaned to Brazil, asking them to join in a new short-term loan facility to make up about $1.5 billion that the nation has lost as foreign banks have pulled funds out of Brazilian banks. However, it will be at least two weeks before firm proposals are ready to send out, one banker said