The current global oil glut is generally welcome news for a world that has seen an increasing share of its financial resources go for energy. It means: falling gasoline prices at the pump; lower production costs for industry, which helps hold down the inflation rate; and perhaps most important, some breathing space for many developing nations that incurred massive international debt obligations in part because of the need to borrow funds to pay for oil imports.
Why the current abundance of crude in general and the drop in price for gasoline related oil products? Some analysts, such as petroleum expert Dan Lundberg, believe the reason is twofold: decontrol of the oil industry in the United States in early 1981 and the inability of the Organization of Petroleum Exporting Countries (OPEC) to check production. Mr. Lundberg, who is generally considered to be on the cautious side in anticipating price levels, believes that the price of gasoline at the pump will continue to decline.
The nationwide overall average price of gas in the US, including taxes, is now running at around $1.18. That is a sharp drop in price since mid-July. At some pumps, $1-a-gallon gas is now available.
Can OPEC hold the line on production - and thus keep prices in the official $ 29 OPEC benchmark range? It seems unlikely. The Soviet Union, which exports 1.8 million barrels a day of crude and oil products to Western Europe, has slashed the price of its oil exports by $1.50 a barrel for the month of August. And some North Sea crude is selling on the spot market for about $27. Other producers are expected to follow the Soviet lead and cut prices.
The oil glut, besides holding down costs at the retail pumps and holding the line on energy costs for industry, has one other important effect: It momentarily eases pressures on the Western industrial nations in the event of any new developments in the Middle East, including the continuing Iran-Iraq war. US oil reserves alone now contain well over 400 million barrels. That is equal to total American imports for three months and imports from the Gulf nations alone for some two years.
The glut, it should be noted, could well have one unfortunate aspect that Congress should watch closely. Many refineries that were built or refitted (at considerable cost) to take advantage of changing trends in oil usage back in the late 1970s are now in financial trouble. Indeed, some 100 refineries have already slammed their doors shut in the past four years. More are expected to follow. But since many of the refineries are run by smaller, independent firms, that could mean some financial losses to energy lenders, including some banks.