Britain's state-owned oil company, now a major power in the global energy market, is certain to lower the price of its North Sea crude again, within days after an expected price cut by the Organization of Petroleum Exporting Countries, oil industry sources said today.
Such a move by the British National Oil Corp. (BNOC) could jeopardize the OPEC accord being laboriously negotiated by ministers from the 13 member countries meeting here and could raise anew the prospect of a price war among the world's oil producers.
But Britain must act quickly after an OPEC price reduction, industry sources said, or face the loss of oil revenues that are a crucial element of the country's economy.
OPEC ministers remained divided today on the key issue of setting production ceilings for the various members to reduce the world oil glut.
"I'm afraid until now we are still apart, far away from each other as far as the quotas are concerned," United Arab Emirates Oil Minister Mana Said Otaiba told reporters.
The British position reflects the extreme fragility of the international oil market. While economists differ over the consequences of an all-out oil price war, the producers would clearly not benefit.
"What we certainly share with the OPEC countries," British Energy Minister Nigel Lawson said today, "is a desire not to see an exaggerated fall in the world oil price now."
Lawson's statement was intended to show the government's desire to avoid a confrontation that could have serious implications for Britain's political and economic relations with Middle Eastern and African OPEC countries.
Nonetheless, if OPEC goes ahead with its tentatively agreed new pricing structure--which would place Britain at a significant disadvantage against its main competitor, Nigeria--the pressure from BNOC's customers for a cut would be irresistible. Leading oil companies, including British Petroleum, Shell and Gulf, have privately said as much this week.
After OPEC failed in January to agree on pricing and production cuts in response to the sharply reduced global demand for oil, BNOC sent a shockwave through the market last month by lowering its price by $3 to $30.50. The next day, Nigeria became the first OPEC member to cut its official price unilaterally, bringing it down by $5.50 to $30.
Largely as a result of that action, OPEC began the urgent consultations that led to the current meetings in London aimed at averting further erosion of its solidarity, which over the past decade has been successful in boosting the price of oil many times over.
However Nigeria's decision to undercut BNOC set the stage for the problem that now has developed. Britain and Nigeria produce roughly comparable grades of light crude, but traders have generally reckoned that Nigeria's should be priced a bit higher because more gasoline can be extracted from its oil when refined.
As a result, oil analysts expect BNOC to drop its prices below Nigeria's to guarantee that Britain can maintain its sales. If Nigeria is authorized by OPEC to maintain the $30 price, for example, then BNOC is expected to go down to $29.50 or possibly $29.
Faced with severe economic pressures at home and difficulties selling its output, the Nigerians have said they will match any BNOC cut with another of their own unless special provisions are made by OPEC for them to maintain a relatively high production rate.
Any fresh Nigerian price cut would again destabilize the rest of the new OPEC price structure, which has been tentatively based on an official price for Saudi Arabian light crude of $29 a barrel, a $5 reduction from the old official price.
Nigeria's oil is priced higher because of its quality and accessibility to customers. Algerian and Libyan crudes also carry a premium but it is smaller than Nigeria's and they do not compete directly with Britain for customers.
The complexities of the pricing issue are dizzying, even to many experts. But the net effect of the British-Nigerian issue is simple enough: the prospect of an oil price war remains high because demand is so low that producers in and out of OPEC are scrambling to preserve as much of the depressed market as they can.
Britain's situation is especially sensitive because BNOC operates strictly on market terms. Unlike the OPEC countries and Mexico, the British government does not set prices and refuses to intervene to reduce output, which it could do.