Britain today proposed cutting the price of its North Sea oil by up to 75 cents, a reduction intended to keep it competitive on world markets without provoking another crisis among producers about falling prices.
The state-owned British National Oil Co. offered buyers of its Brent Field production a 50-cent reduction, with a 75-cent reduction for other grades. Last month, BNOC cut all North Sea oil prices to $30.50, a reduction of $3 from the prevailing price, but many customers said the figure still was too high.
That British action led to an emergency meeting of the Organization of Petroleum Exporting Countries, which earlier this month set a lower price and production schedule for OPEC oil. The meeting set the price of Nigerian oil, which competes directly with Britain's, at $30 and warned that further price cuts by Britain could lead to a price-cutting free-for-all.
The latest British pricing plan emerged after extensive consultations with principal buyers. Assuming they approve the plan, it will bring British and Nigerian oil prices essentially into parity. OPEC spokesmen have said that a cut of the size announced today should not set off a price war.
Nigeria's attitude, however, is crucial. Reports from Lagos in recent days have indicated disagreement among Nigerian officials about whether to insist on a lower price than Britain's, no matter what the British plan is. Nigeria's economy has been hurt seriously by the slump in global oil sales, and even at reduced prices, production is thought to be running below the minimum necessary to meet Nigeria's revenue needs.
The price proposal, the British company said in a statement, "fits into the recently agreed pattern of prices announced by the OPEC countries." During OPEC's marathon session in London, oil ministers met with British energy officials to solicit their cooperation in stabilizing energy prices but were told that Britain would be guided strictly by market forces.
That is technically still the case. Britain's buyers, including such major oil companies as Shell, British Petroleum and Gulf, apparently have signaled to the company that they would accept the new price offer although they are known to feel that the price for North Sea crude should be at least 75 cents below Nigeria's slightly higher-quality Bonny light. The companies seem to be choosing the benefits of price stability over the risks of an uncontrolled downward spiral.
By acknowledging that its proposal is in line with OPEC's decision, the British oil company effectively is coordinating its policies with the organization for the first time. With North Sea production at more than 2 million barrels a day, Britain has a strong interest in a predictable oil market and the highest possible revenues.
The principal buyers of British oil will decide by April 8 whether to accept the new price plan, which would be retroactive to March 1. Uncertainty over the price situation has put heavy pressure on the British pound, forcing it to its lowest exchange levels in history. The pound closed today at $1.465, up about a cent.
Norway, which follows Britain's pricing lead for its North Sea production, reportedly is planning the same size price cut as Britain's.
Even if there is no new price-cutting competition, analysts say it is not certain the drop in oil prices has ended. There has been no significant increase in demand thus far at the lower official prices.