Petroleum price slide: speeding up?

SAudia Arabia may soon regret pushing oil prices into their present downward slide, according to some petroleum analysts. They say the world oil glut is now so large to stop prices from smashing through the floorboards. If that happens, multinational oil companies will be forced to slash gasoline prices at the pump several times this summer and fall.

Not all petroleum analysts interviewed in London and New York believe that it will, however. Richard Reid, president of Esso Europe Inc., is one of those in the industry who doubts that crude prices will topple much below the $32 a barrel floor set by Saudi Arabia.

"Sure, refiners in America and Europe are taking a bloodbath with the falling prices. But most of the cuts will be in the higher-grade crudes from North Africa, Nigeria, and the North Sea that are selling for above $40."

Other oil analysts claim that the downward pressure on demand is strong enough to cause across-the- board cuts in the varying crudes. They cite the fact that Rotterdam cargo (wholesale) prices for refined products are now averaging $29.50 a barrel, cheaper than the cheapest unprocessed Saudi crude. Soon, according to Lawrence Goldstein, an analyst at the New York-based Petroleum Industry Research Foundation, "even the Saudis will have to lower their rates. They can't have anticipated that."

In this case, good news for the motoring consumer bodes ill for the petroleum companies and oil-producing countries, OPEC and otherwise. Refiners using "sweet" low-Sulfur crudes are losing as much as $5 to $7 on every barrel that they break down into gasoline, heating oil, and heavy fuels.

As one London oil executive complained, "It's undeniable that many world crudes were priced in an irrational fashion compared with the Saudi benchmark [ of $32 a barrel]. But the cost of these current low price levels is extremely hard for us to bear."

But the multinationals have it easy compared to some oil-exporting countries. Major crude merchants like Britain, Mexico, Algeria, Kuwait, and Nigeria were counting on high-priced sales to balance the government books. For example, Britain's decision to shave $2 off North Sea oil, which sold for an above-average $39.25 a barrel, could mean a loss of nearly $800 million in taxes this year for Margaret Thatcher's Conservative government.

And in Mexico, Jorge Diaz Serrano, the head of the state-run oil company PEMEX, was forced to resign over Cabinet criticism of his move to lower Mexican crude $4 a barrel.The Cabinet was aghast to learn that Diaz Serrano's machete cut will cost Mexico a badly needed $1.5 billion oil revenues.

and who set off this earthquake in the oil market? Saudi Arabia did, apparently with the best intentions.

As New York oil analyst Goldstein said, "The Saudis took a big risk. They decided to fine-tune the world oil market, and that's an impossible task. Even for them."

What the Saudis did was try to put order into the quarreling house of OPEC. By running pumps at full throttle -- 10.3 million barrels per day -- moderate Saudi Oil Minister Sheikh Ahmad Zaki Yamani created a world oil surplus that he hoped would drive down the prices of such OPEC hard-bargainers as Libya, Algeria , Nigeria, and Kuwait, who were demanding more than $40 a barrel.

Yamani's idea was to meet them in the middle -- at around $34 a barrel -- by inching up Saudi's own prices, thereby forcing a unified pricing structure onto OPEC's 13 bickering members. So far, Nigeria, Iraq, Ecuador, and Malaysia, along with non-OPEC exporters Britain and Mexico, have trimmed their going rates , but the velocity at which prices fell surprised even the Saudis, industry sources say.

The slump in worldwide demand, caused by the greatest oil surplus in history and global recession, means that a glut may persist until the end of 1982, even if most OPEC members carry out a pledged 10 percent cut in total production, and even if the Saudis slash an expected 2 million barrels off their own capacity.

Goldstein said, "The timing is getting precarious.The Saudis have no more than four to six weeks to reduce production. After that they may not be capable of controlling the glut."

Esso's Reid hesitated to use the word glut to describe the current oil price picture. "It's not a glut; what we have is a relatively small difference in supply and demand. All it would take is a modest decrease by OPEC and a slight economic recovery, and this so-called glut would disappear very quickly -- either by late 1982 or 1983."

The problem is where to stash all this extra crude. Storage tanks in Europe and the US are brimming over; crude is either being pumped into underground salt caverns or simply left aboard the anchored tankers that recently arrived from the Gulf.

Earl Ross of the American Petroleum Institute in Washington said, "There's a record inventory of crude stocks in the US right now. Pretty soon the old buyers will just have to walk away from the producers for awhile."

With the world awash in crude, even Saudi Arabia may have trouble muscling the oil market back into shape. Said Goldstein, "The Saudis are walking a tightrope between the West and OPEC -- but now that rope's starting to fray."