New York — * In the North Sea, Norwegian-oil rig workers recently went on strike; output deopped 500,000 barrels per day. But the sharp drop in production failed to boost prices on the spot market for crude oil.
* In the US, tourists are delighted to find gasoline supplies plentiful. Prices -- retail and wholesale -- have even dipped in some areas.
* In Iran, the revolutionary regime has been forced to cut the price of crude oil for export by over $1 per barrel. Even at the lower price, there are no buyers.
* Around the world, major oil companies have ordered their tankers to "slow steam" toward their destinations as onshore storage facilities fill up.m
As all of these examples illustrate, there is a glut of oil on the world markets.
This suplus, estimated to range from 1 million barrels of oil per day to 1.5 million barrels of oil per day, has been caused by a combination of recession and conservation.
Except for isolated cases such as the Iranian crude, however, the surplus has yet to result in significantly lower oil prices.
John Lichtblau, executive director of the Petroleum Industry Research Foundation, Inc., notes that the surplus has merely meant "prices have gone up less than they would have otherwise."
Still, there is some price pressure. One executive for a major oil company says he would not be surprised if such countries as Algeria, Nigeria, Iran, and Libya were to experience some pressure to reduce prices, which carry a premium over the posted price of $28 per barrel for Saudi Arabian light crude oil. Already, the spot price of oil has dropped from $34 to $35 per barrel for $32.50 per barrel. And rumors are circulating in the industry that Iran has offered oil at this price, but found no buyers.
This is not to say that the Organization of Petroleum Exporting Countries (OPEC) could not raise prices again in September. Mr. Lichtblau says he would not be surprise if Saudi Arabia moved to $32 per barrel. In fact, a planner for a major oil company says his company understands that Saudis agreed to increase prices to $32 per barrel in September when OPEC last met in June. However, as another oil company executive notes: "The leapfrogging that characterized last year is over."
Last year, every time Saudi Arabia raised its price, other OPEC producers raised their own prices, which had substantial premiums tacked on to them.
One indication of the impact of the current surplus in the US is the dramatic drop in imports in June.
According to the American Petroleum Institute (API), imports in June dropped 21.8 percent to 5.1 million barrels of oil per day from 6.554 million barrels of oil per day for the same period last year. Increased domestic oil production added to the import slump. Domestic production grew from 8.4 million barrels of oil per day to 8.7 million barrels per day. This extra oil came principally from additional production from Alaska.
While US oil companies are reducing imports, they also are building inventories, to record levels. The API notes that inventories totaled 371.8 million barrels at the end of June, up 15 percent over the same period a year earlier.
One oil executive, however, says he expects the inventories to remain high. "There is still an uncertain feeling about the Middle East, which means that 20 days of usable commercial inventory is not much insurance." In fact, Secretary of Energy Charles W. Duncan Jr. said last week that within a decade he expected a "serious" supply interruption from one country or another.
The Japanese likewise remain suspicous about world oil supplies. They currently have a fairly large number of tankers full of oil in what is termed "floating storage." And one executive for a major oil company says tanker chartering companies are offering vessels with 30-to-60-day storage rights as well. Almost every major oil company is "slow steaming" its tankers. The companies claim this saves considerable fuel expenses, but it also delays building inventories.
Conservation continues to play an important role in reducing oil consumption. For the past six months, conservation has cut oil usage by about 5 percent per month. Thus, gasoline usage now has declined to its lowest level since June of 1971.
The economic slump also has eaten into residual fuel oil sales. Low sulphur residual fuel oil is being offered on the Gulf Coast at $23 per barrel, or 65 percent of the cost of crude oil. Normally, it is sold at 80 percent of the cost of crude oil.
Adding further pressure to keep the lid on the price of oil is a surplus of natural gas. This "bubble" of natural gas has spread from Texas and Oklahoma to West Virginia and Pennslyvania, reports Michael E. Minson, president of Minoco, a company that sells oil and gas partnerships.
The result has been a major push by the gas pipeline companies to hook up new customers. Another result of the gas suplus, comments Mr. Lichtblau, is the fact the Canadians did not increase their prices on natural gas exports to the US for this fall when their contract permitted them. Furthermore, there has been no cutback in gas availability in spite of a dropoff in liqufied natural gas deliveries by Algeria.
Next: Can OPEC's grip on oil prices be loosened?