Joint crude oil production cutbacks by OPEC nations this month have halted the fall in petroleum prices in world markets, at least temporarily, and may spell an end to the recent decline in the amounts motorists pay for gasoline, industry and government oil analysts report.
Led by a 10 percent production cut by its largest producer, Saudi Arabia, which had almost alone been responsible for the oil glut that has depressed prices, the Organization of Petroleum Exporting Countries is apparently counting on an upturn in demand this summer or early fall to further strengthen its position.
U.S. industry and government oil specialists who join in this cautious consensus stress that continued price stability or even increases late in the year are dependent on the determination of Saudi Arabia and other Persian Gulf producers to stick to the cuts they have made. But these analysts add that spot oil and stock markets are acting as though buyers were convinced that the Saudis will live up to a pledge of further reductions if necessary to shore up markets.
This determination was underscored by well-publicized Saudi jawboning of the international oil companies at the end of March to prevent the companies from forcing Nigeria to break with the cartel and cut its price. Other OPEC countries joined the Saudis in supporting Nigeria.
In the past month the prices brokers pay on independent, or spot markets have risen from $28 for a 42-gallon barrel of Arabian light benchmark crude to $31 a barrel. The spot market, primarily single-cargo sales, is widely considered a barometer of oil price trends as opposed to longer term contract sales.
Depressed oil company stocks on American markets have rebounded in recent days, and industry analysts suggest that a bottoming out of fuel prices could also have a major impact on the Reagan administration's efforts to keep inflation rates down.
"The impact in the market so far is primarily psychological, and the effects for the consumer won't be seen for awhile," said a market analyst in the International Affairs Section of the Department of Energy.
OPEC's formal cooperation in cutting production and in backing Nigeria were both unprecedented. They reflected OPEC members' efforts to act as a group to reassert their influence in the market over the international oil companies, which have had the upper hand because of the glut.
Some OPEC members, notably Iran, are breaking the cartel's agreement by selling oil at below-official prices. One oil company executive said yesterday that Iranian oil could be purchased for $28, or $6 below the price that should be charged under the OPEC agreement. If more members break with their fellows, or if Iran and Iraq are able to sharply raise their war-depressed production, then OPEC's prices could resume their decline. In addition, demand could remain weak if oil companies decide they can reduce their inventories to lower levels than in the past.
For the moment, however, specialists are giving OPEC a better-than-even chance of keeping its prices steady.
"The cartel appears to be fighting a winning battle," said John H. Lichtblau, president of the private Petroleum Industry Research Foundation in New York. "The OPEC countries think they'll be all right if they can just make it through until the fall."
Oil prices had been slipping steadily as oil companies flooded world markets by emptying storage tanks in a heavy selloff of inventories. Companies feared being stuck with high-priced oil and did not like paying high interest rates to finance their holdings. Some U.S. industry analysts predicted that OPEC prices would drop from their official levels grouped around $34 a barrel to $25 or lower.
On March 20 in Vienna, however, OPEC agreed for the first time on official production quotas for individual members. The agreement provided for a cut in OPEC output by a total of 700,000 barrels a day and fixed a ceiling for the cartel's daily output at 17.5 million barrels. A four-nation OPEC committee last week reviewed progress under the accord and claimed that the cartel's production had fallen even more than planned, to 15.85 million barrels a day.
Industry specialists doubt that OPEC output has dropped so much, but they agree that the cartel's action has helped dry up the glut. In addition, they say OPEC is likely to enjoy a resurgence of demand within the next few months.
The world is estimated to need at least 20 million barrels a day of the cartel's oil this year, or at least 3 million barrels a day more than OPEC's current production, according to executives at major U.S. oil companies and Department of Energy experts. So far inventories have been making up the difference, but the oil in storage will start to run out soon.
"Demand for OPEC oil will jackknife upward when inventories are liquidated, unless we go into a much deeper recession," said the chief of international planning for a major U.S. oil company.
Before the OPEC meeting last month, U.S. industry and administration officials half expected Saudi Arabia to allow prices to fall. Saudi Oil Minister Sheik Ahmed Zaki Yamani had resisted the OPEC price rise to $34 in the first place, arguing that markets would not be able to support it.
The Saudis impressed speculators and oil company buyers in the spot markets by lowering their production ceiling to 7 million barrels at the meeting, down 500,000 barrels a day from before the meeting and 1.5 million from the start of the year. Industry sources say the Saudis have cut output to less than 7 million barrels a day, perhaps 6.7 million.
That is 1.8 million barrels a day below their ceiling in December, 1978, before they started a runup in production peaking at 10 million barrels a day to compensate first for the slump in Iranian production following the overthrow of the shah and then for the dropoff caused by the war between Iran and Iraq.
After the March meeting, in a surprising display of arm-twisting, the Saudis threatened to cut off oil sales to any company that tried to phase out its purchases from Nigeria. The story was first reported by the Cyprus-based publication Middle East Economic Survey, known for its close ties to the Saudis, and Yamani indirectly confirmed it shortly afterward.
Nigeria currently is considered OPEC's weakest link and the most likely country to reduce its price. The African country is currently trying to stick to the official OPEC price of $35.50 a barrel for its light, low-sulfur crude, but companies prefer to buy similar high-quality oil from non-OPEC member Britain for only $31 a barrel.
Libya and Algeria are also suffering from British competition, but Libya needs less money than Nigeria because it has a much smaller population and Algeria's natural gas sales are doing well. The two North African countries are also reluctant to cut prices because of their radical political views.
In helping Nigeria, the Saudis had particular clout over Mobil Corp. and Texaco Inc., which buy oil from both Saudi Arabia and Nigeria. Industry sources said Mobil agreed to maintain its purchases from Nigeria for April, and some sources believe Texaco did the same.
Nigeria officially expressed thanks for the support, although its production is still reported far below its desired level of 1.3 million barrels a day. OPEC's president, Mana Said Oteiba, who is also oil minister of the United Arab Emirates, said OPEC would provide financial backing to Nigeria to keep it from lowering its price to attract buyers.
Saudi Arabia is determined to support the current OPEC agreement because it fears that a break in ranks might result in a panicky market that would be a severe blow to the cartel, U.S. administration and industry sources say. In addition, the conservative kingdom is compensating a bit for the years when it drew fire from Arab militants for pumping oil at high levels to slow the upward spiral in prices.
"They the Saudis don't want to get in a position where their militant Arab brethren can say they're just lackeys of U.S. imperialism," an administration specialist commented.
The cartel is still facing the risk that financially strapped members such as Iran, Iraq and Nigeria will raise output above production ceilings because they need the money.
The market is not expected to tighten enough to push prices upward until the end of this year at the earliest, although political upheaval in the Middle East could send prices soaring by cutting production and spurring buyers' fears. Assistant Secretary of Energy Henry E. Thomas said political tremors are currently the main factor propping up prices.
"The political situation in the Middle East may well be the key element in psychological terms in stabilizing markets and preventing a fall in the price," he said in an interview.