Venezuela's benchmark heavy crude oil plummeted $4.50 per barrel to $14.30 in trading today, according to buyers in New York.
It is expected that Mexico, which had cut prices together with Venezuela recently, will follow suit. Venezuela's heavy crude competes against Mexico's Mayan oil in the United States.
The price decline is an apparent response to Venezuela's decision this weekend to free the state oil company to sell oil at prevailing market prices, without having to receive central government approval first.
Analysts say the decision, which is a further admission that the market rather than OPEC sets prices and production levels, could force Venezuela's prices for heating oil down by as much as $5 per barrel. Generally, the more viscous the oil, the lower the price.
By freeing the hand of Petroleos de Venezuela, the government has taken its most drastic move yet to sell oil to meet debt obligations and domestic spending plans.
"We believe that the measure we have just taken will allow us to adapt to the situation of the market and to guarantee us the placement of our projected export volume," said Deputy Energy Minister Hernan Anzola.
Exports have declined to about one-third below the target of 1.41 million barrels per day as competitors have undercut the country's prices. Venezuela may have to increase production above the target level to ensure high enough income if prices fall too low. Doing this would go counter to OPEC's goal of limiting production.
Most Venezuelan oil currently costs about $20 per barrel after a reduction of of its heavy crudes by $3 per barrel Feb. 1 in a joint action with Mexico. Mexico and Venezuela decided to cooperate in pricing policies following a meeting of the two countries' presidents.
While Mexico is not a member of the Organization of Petroleum Exporting Countries, and Venezuela is the its second-largest producer, they are now working together because the primary market for both countries is the United States, where Mexico is the largest foreign supplier and Venezuela is third.
Venezuelan and Mexican oil ministers have met with their counterparts in Egypt, Saudi Arabia and Norway seeking an agreement to lower oil production.