Oil prices down to 1974 levels

Press, 12 October 1988, Page 37

Oil prices down to 1974 levels

NZPA-Reuter Nev/ York Fifteen years after the Arab oil embargo tripled oil prices, the world is awash in oil and prices have fallen to 1974 levels. Oil supplies are plentiful, production in nonCommunist countries totalling 50.6 million barrels per day, the highest in eight years, according to the International Energy Agency. "In real terms, we have much lower prices now than in 1973-78,” said Mr Maurice Adelman, an economist at the Massachusetts Institute of Technology. "But oil prices would have been' even lower if the Organisation of Petroleum Exporting Countries had not been there.” The 1973 embargo gave OPEC its first opportunity to flex its oil exporting muscle.

On October 16, 1973, Saudi Arabia raised its official price for Arab light, the OPEC benchmark crude, from SUS3.OI to SUSS.I2 a barrel. Four days -later, the Saudis halted all oil sales to the United States and four European countries to

protest the western nations’ support of Israel in the Yom Kippur war. By January 1, 1974, the official price for Arab light had leaped to 5U511.65, up 350 per cent from the previous year. Spot market prices, which indicate how much buyers are willing to pay for oil, rose. Arab light sold around SUS4.IO a barrel in the 1973 fourth quarter then at SUSI 3 in the next quarter, Cambridge Energy Research Associates said. Today, OPEC's comparable key grade, Dubai, sells for less than SUSIO a barrel on the spot market, about SUS 7 under OPEC’s target price. OPEC was able to raise oil prices in 1973 and again in 1979 because world demand for oil was rising, Mr Adelman said. The increases jolted the American economy, sending inflation into the double digits. “OPEC could function effectively as a cartel, because it alone could expand or contract output in a growing market,” he said.

However in New York on Monday (early yesterday, N.Z. time), oil prices made their biggest oneday rally for a month after news that Saudi Arabia oil output for the week had fallen. On the New York Mercantile Exchange, the price of the American bench-mark grade of oil, West Texas intermediate, rose US66c to close at $U513.60 a barrel. Saudi Arabia’s oil output in the week ended October 9 was about its OPEC quota of 4.343 M barrels per' day (bpd), oil industry sources said. Saudi output for the previous week was estimated at 5.7 million bpd. “There was massive short-covering after the report that Saudi production fell to around its quota level,” said Mr Jim Steel, an oil analyst with Refco. “That would be a production drop of about 20 per cent. “From a psychological point of view, the report of lower Saudi production was the only good news the market has had in ages,” said Mr Steel.