Spot-market oil prices fall sharply as glut grows

Press, 18 July 1980, Page 6

Spot-market oil prices fall sharply as glut grows

NZPA-Reuter London A. growing glut of oil has brought a sharp slump in market prices, some of which have fallen below official levels charged by producers, traders have reported. Ab. ■ ' Scores of tankers bearing millions of barrels of oil are lying idle off'' the ports of big consuming nations as their owners seek buyers for their 'cargoes, they say. Prices on the free “spot” markets of London, Rotterdam,. Singapore, and New York have dropped steadily in.recent they say. • Prices for African oils are up to SUS 1.35 below official levels at between SUS3S and SUS 37. a barrel.;. . The • turnaround in prices, which : have soared by 150 per cent since early 1979, is putting .strong ..pressure for the/first? time on oil-produc-ing’coiihtries .to return to a Unified? ..controlled ; pricing system.

And some producers are being forced to relax premiums they have sought -to charge on their oil.

The growth in stocks of oil in industrialised countries, which many traders say are around record levels, is a consequence of the recession, a fall in demand caused by higher prices, efforts at conservation, and unexpectedly mild weather. With the recession worsening,; prices on the spot market are likely to fall further ~in the. next few months, adding to fhe squeeze ,on Orof Petroleum Exporting Countries, the traders; say. s ' ■• ■ ' ■ The most dramatic sign of the build-up in oil stocks is off the Gulf .coast of the United States, the world’s largest - oil importer.: where tankers carrying up to 30 million barrels are waiting to unload.’ ;■ ' t

“The sea lanes are becoming so crowded, the joke in the market now is • that if the tankers \vefe laid end-to-

end, it would be possible to walk across the Caribbean,” according to one trader. Storage tanks in Europe' and Japan are mainly full and companies are seeking new locations to store oil; Major oil firms are swelling the glut'by trying to sell oil consignments they have no use for, some traders believe. With stocks in Japan at record levels, tankers carrying a total of ’about 30 million barrels are also waiting offshore, the “Petroleum Intelligence” ~ weekly newsletter has reported. Companies in both Europe and Japan have issued slow steaming? orders to. their tankers to try to delay oil reaching- both areas. The slump, in spot prices for oil so far has hit the income- of -only .a .few relatively small producers, such as Dubai and , -Cameroun, which use the/ free market, the traders say. A - \ .

Most of the world’s oil is sold through long-term con-

tracts between the producers and the big. companies or the governments of consuming nations. But the fall in the market price has removed the justification, which some producers claimed for charging premiums above, their official price. Syria has ‘ cancelled a SUSI.2O premium it had announced only recently..’

The fall in demand will also inevitably make it easier for Saudi Arabia to succeed in its ■ efforts, to persuade O.P.E.C. to return to a unified pricing system. Thr.t country, which has the world’s largest exports, is effectively gaining control of. pricing bv maintaining output at a high 9.5 million barrels a day.

This high ~ Saudi output, coupled with falling demand from industrialised nations, is effectively cancelling out output cuts by ’ other’ producing countries.