Great Britain lowered the price of its North Sea oil yesterday, intensifying pressure on international oil prices and increasing chances that the Organization of Petroleum Exporting Countries (OPEC) will have to join in the price cuts.
Britain's cut of $1.35 a barrel to $28.65 followed Norway's decision Tuesday to slash its official oil price by $1.50 to $28.50. Similar moves last year by Britain and other non-OPEC members forced the oil cartel to lower its price for the first time, and there were reports yesterday that OPEC officials were considering calling an emergency meeting within two weeks.
Britain's move sent prices on the spot market tumbling, forced a decline in the price of oil company stocks on Wall Street and pressed the British pound to new lows on foreign exchange markets.
There was no ready explanation for the sudden price cut, though the international oil supply was considered high while demand remained sluggish. Mild fall weather in the American Northeast, for instance, was reported a factor in the low demand.
One sign of the pressure on prices was the American Petroleum Institute report yesterday that U.S. oil imports dropped 9.6 percent last month as buyers held off on purchases to see if prices would drop even further. Imports for the third quarter of this year dropped 10 percent from the same period in 1983.
Oil users have been drawing down stocks that they squirreled away earlier this year when they feared that a massive outbreak in the four-year-old Iran-Iraq war might disrupt the world oil supply. The fighting leveled off, however, and the supply of oil remained firm.
Britain's North Sea oil has been priced at $30 a barrel since early last year, while OPEC set its price at $29. Spot market prices dropped as low as $27.50 yesterday. Both Britain and Norway produce a high quality, light crude oil that sells at a premium over most of the crude that comes from OPEC nations.
Analysts said the price cuts by Britain and Norway puts immediate pressure on Nigeria, an OPEC member that sells the same kind of crude as the North Sea oil at the $30 official price. To keep from losing sales to Britain and Norway, Nigeria is likely to have to cut its own prices, which could trigger another round of declines.
Abu Dhabi, one of the United Arab Emirates and also an OPEC member, indicated earlier that it might be forced to cut prices to meet the competition.
The price cuts, which are unlikely to be felt immediately by consumers at American gasoline pumps, are considered a factor helping to contain worldwide inflation.
They could hurt some of the poorer oil-producing nations, however, especially Mexico, Venezuela and Nigeria, which need the money to pay off their heavy debts to Western banks and multinational organizations. Saudia Arabia's oil minister, Sheik Ahmed Zhaki Yamani, warned in July that a fall in oil prices to $25 a barrel could hurt "a large number" of U.S. banks holding foreign loans.
Mana Saeed Oteiba of the United Arab Emirates was quoted by the the Financial Times of London as pledging "to defend the market by all ways and means, even if it means reducing the national quotas and the official ceilings." Oteiba, the head of OPEC's market monitoring committee, said the oil cartel would call an emergency meeting for later this month. "We are taking this matter very seriously," he told the Financial Times.
The 13 OPEC countries have a capacity that is at least 50 percent greater than they currently produce, Exxon Chairman Clifton Garvin said in an interview with Washington Post staff writer David Vise last week in which he predicted a decline in the price of oil.
OPEC has already cut its production to about 16.5 billion barrels a day in June, 1 billion barrels below the ceiling it set in March 1983, to shore up world oil prices against a threatened collapse.
Several OPEC producers have gone even further, discounting prices to ensure a market for their product. Libya has used tax concessions, while Iran gave big Japanese customers free credit for 60 days on their purchases.
The reduction in oil prices, announced by the state-run British National Oil Co.,will cut into Britain's national revenue, which Prime Minister Margaret Thatcher said yesterday brought $12 billion a year into the treasury. This caused an immediate decline in the already faltering pound sterling, which ended the European trading day at $1.20, its lowest finish ever in London.