The oil glut that won't go away
Oil exporting countries may find themselves desperately having to slash prices as the world's oil glut persists.Skip to next paragraph
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In London and Rotterdam, oil traders who predicted last year the glut would end in late 1982 are now grimly calculating that it may be here for quite a while longer, at least into 1983.
If prices fall as a result, say petroleum experts in London, price cutting could unleash a storm of confusion on the world oil market, one which motorists in Europe and the United States will happily ignore as gasoline prices drop steadily throughout the spring and summer.
As an American oil company spokesman explained, the escalating price wars on both sides of the Atlantic means ''one heck of a deal for the consumer, but it could lead to heavy losses for the refiner. Most likely, the big multinationals will be able to take it, but the smaller independent refineries may go bust.''
European oil traders predict that with a daily 3 million-barrel-a-day surplus awash in the market, crude oil prices may slide to $29 a barrel if the glut continues. Some oil analysts feel that the surplus today is nearer to 2 million barrels a day.
What is certain is that plummeting demand and sagging prices have sliced back profit margins drastically for the oil refineries.
With the market in such disarray oil analysts predict that OPEC and the other crude exporters may even face trouble arranging an orderly retreat of petroleum prices.
This week Britain cuts its North Sea oil by $1.50 a barrel to $35 a barrel. The cut was the biggest by a major oil producing country since last fall when OPEC unified its crude oil price structure.
Saudi Arabia and other oil pumping states were already stirred into panic earlier this week by the decision of Ayatollah Khomeini's regime in Iran to flout OPEC's unwieldy price regulating structure. They are worried that by undercutting the official OPEC benchmark of $34 a barrel by at least 80 cents, Iran's move may trigger other OPEC members to chop their crude prices too.
Oil ministers from Saudi Arabia, the United Arab Emirates, and Kuwait met hastily in Abu Dhabi Feb. 8 to discuss holding an emergency OPEC summit. The next OPEC meeting is scheduled for May 20 in Ecuador, and some Arab oilmen fear that unless some immediate action is taken, the downward tumble of crude prices may soon prove uncontrollable.
Some petroleum brokers believe that even by reducing prices OPEC may not be able to end the world's oversupply, caused by a prolonged recession in the United States and Europe, falling consumer consumption, and a traditional springtime drop in demands.
Robert Poulliot, an oil analyst monitoring the Middle East, said ''even if the Saudis, by far the biggest vendor, were to come down $4 a barrel it wouldn't necessarily end the glut. There is no market now because the big petroleum companies are drawing down (emptying) their stocks.''
Rather than buying crude now, companies and purchasing governments are letting their huge oil tanks run dry. Their strategy, says a London spokesman for one of the major oil companies, is to keep the market brimming with surplus crude, thus driving down prices. This also enables them to cut storage costs, which run as high as $8 a year for one barrel.
But the Saudi oil minister, Sheikh Ahmad Zaki Yamani, recently forecast an end to the glut once the crude inventories are nearly empty. He said that governments and petroleum companies will then purchase substantial quantities of crude, firming up prices.
However, many oil analysts dismiss Sheikh Yamani's assessment as too optimistic. A US oil company official in London said, ''Even after they fill up stock, OPEC will still have excess producing capacity. Some countries like Iran, Iraq, Kuwait, and the North Africans are just itching to raise production.''
Iran and Iraq in particular, need increased oil revenues to fuel their 16 -month-long Gulf war, and this is one reason why Tehran violated the OPEC pricing agreement.
Kuwait and several other OPEC members have criticized Saudi Arabia for not attempting to reduce world oversupply by cutting back their high production levels. The Saudis dropped output from 10.3 million barrels per day (bpd) last August to below 8.5 million bpd, but some hard-pressed OPEC governments are pushing Sheik Yamani to drop even more -- down to 6.5 million bpd.
Several Middle Eastern analysts said that Saudi Arabia, whose output totals 40 percent of all OPEC production, will resist pressures to tighten the pump. ''If they did reduce,'' claimed one Cyprus-based oil expert, ''the Saudis would dangerously weaken their leverage within OPEC. Plus, there is no guarantee that once the Saudis did cut back, the hungrier OPEC countries wouldn't immediatly jack up their own production levels.''