THE PRESS TUESDAY, DECEMBER 30, 1980. Oil, prices trickle upwards

Press, 30 December 1980, Page 10

THE PRESS TUESDAY, DECEMBER 30, 1980. Oil, prices trickle upwards

Western consumers generally .felt a sense; of relief when the Organisation , of Petroleum Exporting Countries'de-' \ cided at its meeting this month to raise the price of oil. by only 10 per cent The. average price charged by O P.E Cz members will be about $35 a barrel. Saudi Arabia,, which supplies about 50 per cent of .'New Zealand’s ’ imports, -will continue to charge one of the lower prices — about 832 a barrel.

Even so. a 10 per cent increase would add .about S7O million to New Zealand's bill for oil imports in a full

year Small wonder then that another increase in the price of petrol (to about •-•60 penis a litre) is exnected within-a ' few weeks* and that the Minister of Energy, Mr Birch’, has said that. New Zealand must reduce its oil consumption by a further 5 per cent.

Although the oil producers appeared to behave with restraint at their meeting in Bali this month, the prices that they agreed to charge will not necessarily remain in force for long; nor will the official agreed prices always be those which consumers will be asked to pay. It is only three months since Saudi Arabia la<t increased the price of its oil. from $2B a barrel to 830. Increases by some other producers have been even more frequent.

The producer countries appear to have ..decided that small, frequent incrbasesViri iprice are likely to be. ac : cented more readjlv by.consumer?'than large, infrequent increases. Thanks .to a' series Of qufet-price rises ea'rlier in 1980 4he average price of oil tff Western consumers has increased by 25 per cent in thejfist year. At that rate, a retail nrice of 81 a litre for petrol in New Zealand is, ..at most, only, a couple of yearsaway.

The recent O P E.C. meeting took place at a time when oil was generaHv not In short supplv throughout’ much of the world, in spite of the interruptions to supply caused by the continuing war between Iran and Iraq. The snot price of oil on the onen market had reached .$42 barrel in October, but has been falling since then as companies and countries have found, their stocks built’up to adequate levels. The sense of panic that accompanied price increases and interruptions to supply

. earlier in the;. 1970 s has been missing in- ■ the last, few: months. Consumption - of oil in; the Western world, declined 3 per cent tliis -year;?and is expected to de-, cline by a further 2 per cent in 1981. Even iso, nothing like a buyers’ market has emerged. Production from Iran and Iraq remains only a fraction of what it was before the war began, and could stop completely at any time. Supplies from other producers in the Gulf are not assured, and the bulk of New Zealand’s oil comes from Gulf States. For consuming countries such as New Zealand, perhaps the most daunting prospect of all is that agreed prices and contracts will not necessarily be honoured by producing countries

While the official prices continue to be increased modestly, if frequently, several producing countries have begun to charge premiums before they will fulfil specific contracts or supply particular countries. Kuwait, for instance, another important supplier to New Zealand. recently imposed a premium of S 3 a barrel on a cargo of liquefied petroleum gas bought by the French Government. Nigeria is seeking premiums on firm contracts to be filled next year, and may want the premium as a lump sum in. advance — as a kind of bribe to ensure that, a delivery is made. Kuwait has sought premiums from Japanese. customers. Algeria has been asking for premiums of $3 a barrel — and has offered to repay the premium if the customer invests the money in Algeria. New Zealand might not be able to remain free'from these unofficial pressures bv greedy suppliers determined to push the price of oil higher than the prices agreed to by O.P.E.C. Each increase enhances the case for the speedy development of New Zealand’s own liquid fuel resources. Each increase -should; also make all consumers aware that their only sure form of retaliation is to use less fuel or import less fuel.

Even a significant decline in consumption by oil importing countries is unlikely to bring down the price of oil. If present-trends continue there must be some hope, however, that a decline in consumption would return to importers sufficient bargaining power to make price increases a little smaller and a little less, frequent.