Oil prices rebounded yesterday, but industry analysts said the gains represented only temporary relief from the long-term, continuing slump that has forced some oil prices to record lows.
However, several analysts said that, while they don't expect prices to begin climbing anytime soon, neither do they expect them to drop much further. The recent decline has been blamed on the systematic campaign by Saudi Arabia to force other Organization of Petroleum Exporting Countries and non-OPEC producers into curbing production.
"You can constantly predict that prices have gone down as far as they're going to go," said Albert J. Anton Jr., a partner with Carl H. Pforzheimer & Co. But Anton said he believes prices have reached "not so much a floor as a bottom area." They might dip briefly lower, but "economics work against the continuation of prices at this level."
Oil prices have been under mounting pressure because of massive increases in production by the Saudis, who have raised their output from their OPEC-assigned quota of 4.35 million barrels a day to approximately 5.5 million barrels a day. That pressure is likely to remain until OPEC reconvenes in Geneva July 28, resuming deliberations that broke off in late June without an agreement to curb production.
The pressure on prices has manifested itself in some record lows. Earlier this week, the price of Brent North Sea crude oil -- which traded at $26.90 a year ago -- dropped to $8.65 a barrel, the lowest price at which it ever has sold. The price rose yesterday to $9.30 a barrel. West Texas intermediate crude oil, the benchmark U.S. product, also rose yesterday, in a technical rebound, to $12.11 a barrel. On March 31, the West Texas crude hit a closing low of $10.42.
Several factors contributed to the resurgence. Analysts cited remarks by Saudi Arabia's King Fahd, who urged both OPEC and non-OPEC producers Monday to reach an agreement curbing oil production to stabilize prices. The market also was reacting to an announcement by Ecuador, an OPEC member, that it will cut its production by 5 percent in a gesture toward shoring up prices.
But analysts said that they don't expect any real upward trend in prices until after the OPEC meeting later this month, and then only if a majority of OPEC producers reach the agreement on production that has eluded them all year. "The basic short-term outlook is one of continuing price weakness, the reason being that the Saudis are trying to orchestrate downward pressure on the price to obtain concessions at the upcoming July 28 meeting," said Sanford Margoshes, an industry analyst with Shearson Lehman Bros. Inc.
The disarray in OPEC and the depression in oil prices it has produced also has caused a sharp decline in drilling activity in the United States. The number of active oil drilling rigs dropped to 663 last week, the lowest level in the 46 years that the Hughes Tool Co. has kept track of the activity and less than half the number of rigs at work as recently as a year ago, when the count was 1,931. In December 1981, amid a boom, the count was 4,530.
Analysts said that the price pressure finally may be great enough to produce a change in behavior from producers, who have been unwilling so far to rein in production. For one thing, prices are close to the cost of production in some cases. For another, according to some analysts, low prices are so pervasive now -- extending even to the prices of refined products -- that it makes them impossible to dismiss.
When the price of West Texas intermediate dropped briefly below $10 a barrel in April, "it was not as genuine a reflection of what was going on in the market" as the current prices are, Margoshes said. Oil companies could find comfort in the notion that profits on refined products would to some extent offset the decline in crude prices.
"Now there is a prevalence of pain and a uniformity of devastation . . . that is the prerequisite for change," Margoshes said.
Anton said that the price pressure has forced the price of Alaskan crude delivered to the Gulf Coast by Standard Oil to such a low level that -- once transportation prices are subtracted -- the price at the entrance to the pipeline is about $1.20 a barrel, according to his estimates. "The cost of production and so forth is higher than that," he said.
Saudi Arabia set the oil price depression in motion because it felt abused by other OPEC countries that counted on the Saudis to cut back production when prices needed support, according to many analysts. "The Saudis were trying to administer shock therapy and used collapsing oil prices as that instrument," Margoshes said.