Nigeria broke ranks with the rest of the Organization of Petroleum Exporting Countries yesterday, lowering the price of its oil by $2 a barrel, as OPEC prepared to meet in emergency session to try to halt the downward spiral in prices.
In London, U.S. Energy Secretary Donald P. Hodel predicted prices could fall even lower -- dropping the current OPEC benchmark price of $29 a barrel to as low as $25 if there is no major supply disruption or a cutback in production.
If the price cuts spread, analysts said, U.S. consumers can save as much as two to three cents a gallon on their heating oil and gasoline bills this winter. But the coming cold weather may prove to be the oil cartel's best weapon in defending its pricing structure.
OPEC said its ministers will hold an emergency meeting in Geneva to develop strategy to halt the price slide. The meeting may occur as early as Monday, according to Reuters.
Nigeria, considered OPEC's weakest link, was under strong pressure to follow two non-OPEC members, Norway and Britain, in cutting the price of its Bonny Light, since the African nation produces the same type of premium crude as the European suppliers.
Britain cut the price of its oil by $1.35 a barrel, to $28.65, on Wednesday, the day after Norway decided to lower its price by $1.50 to $28.50. Nigeria, vowing to match the European cuts, lowered its prices yesterday to $28 a barrel.
Nigeria precipitated OPEC's first price cut ever in March 1983 by unilaterally dropping its oil price to match a similar cut by Britain.
"To arrest a fall in oil production and revenue, we have decided to reduce the price of our oil," Nigerian Oil Minister Tam David-West said in Lagos yesterday after a meeting of the country's Executive Council.
According to Dow Jones news service, he said the price cuts will take effect immediately and added that Nigeria's own interests take precedence over its obligations to OPEC.
There also were reports from reliable industry sources in London that Abu Dhabi, another OPEC member and one of the United Arab Emirates, is offering secret discounts of 50 cents a barrel to its major clients.
The action by Britain and Norway further lowered the price on the volatile spot markets, where North Sea oil not covered by long-term contracts fell to about $27 a barrel yesterday. Saudi light also dropped to $27.
The effect of the OPEC meeting is likely to further depress prices, as oil buyers hold off on purchases on the chance the cartel will be forced to cut prices. An early cold snap, however, could disrupt that strategy by strengthening the demand for oil and boosting the price.
Before Nigeria's announcement, the oil cartel's secretariat issued a statement from its Vienna headquarters, saying, "OPEC countries are all determined to maintain and strengthen the price and will take every necessary measure in this regard."
OPEC spokesman Gonzalo Plaza said OPEC oil ministers will meet in Geneva to "consider ways and means that could eventually be taken to defend the present price structure.
"Any downward spiral of oil prices," Plaza said, "would have far-reaching adverse effects not only on OPEC countries and their development requirements but also on the world economy at large, since any such price deterioration would disturb the long-term world energy balance and world trade."
Armand Hammer, chairman of Occidential Petroleum Co., advised OPEC to meet the challenge of price cuts by restraining its production. "Prices will firm if OPEC can change the situation by adjusting production downward," he told a London seminar sponsored by The International Herald Tribune and The Oil Daily. He suggested that Saudia Arabia could cut its output by 1 million barrels a day, from its current production of about 4 million barrels, to create a shortage instead of an oil glut.
But Hodel, the U.S. energy secretary, warned OPEC at the same meeting against trying to maintain artificially higher prices against the market's downward pressure. "You can't buck the market for an extended period of time" without creating wild price swings that could eventually disrupt the world economy, he said.
Oil price cuts are a two-edged sword, helping industrialized nations and non-producing Third World countries. But heavily in-debt oil producers such as Mexico, Nigeria and Venezuela could be badly hurt by price cuts, and their problems could be passed on to U.S. banks and their other lenders.
Reductions in the oil price also could make it more difficult for Iran and Iraq to finance their four-year-old Persian Gulf war.