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Britain Said to Cut Oil Prices

April 4, 1985

LONDON (AP) _ The British National Oil Corp. has proposed to its suppliers the first reduction this year in the price it pays for the major grade of North Sea oil, a cut of $1.15 a barrel to $27.50, oil industry sources said Thursday.

The reduction also would put Brent oil $1.15 below the official selling price of Nigeria’s Bonny Light blend, a competing OPEC oil, but analysts said that oil markets currently are strong and another round of price cuts is not imminent.

British National Oil, a government-run oil trading company known as BNOC, refused to announce a new official price. The company is scheduled to be abolished later this year as part of the Conservative government’s efforts to move toward oil prices set by open markets rather than through official decree.

The industry sources who discussed the pricing proposals spoke only on condition they not be identified.

The new price would be higher than the average of spot market prices for oil scheduled for delivery in April. Since December, the April prices have averaged slightly above $27 a barrel, traders said.

In the spot market Thursday, Brent oil for May delivery was quoted at $27.65 a barrel and June deliveries were quoted at $27.25 a barrel, according to Telerate Energy Service, a market information firm.

Britain’s new price would be lower than the $28.65-a-barrel official price set by Nigeria for its Bonny Light oil, a grade of crude in direct competition with Brent oil from the North Sea.

Nigeria, unlike Britain, is a member of the Organization of Petroleum Exporting Countries and in the past has broken ranks with OPEC to match British price cuts.

″Next time there is a downturn in the market, and there will be another downturn ... North Sea prices will fall and this will put pressure on Nigeria to follow,″ said Paul Mlotok, an oil industry analyst at the New York securities firm Salomon Brothers Inc.

For the time being, he said, Nigeria is able to find customers to sell its crude oil at official prices.

″But if they find themselves unable to sell their crude oil because of competition, we will likely see them (Nigeria) adjust, and that puts pressure on the rest″ of OPEC, Mlotok said.

With ″one less player running interference″ for OPEC, the cartel will be more exposed to shifts in prices, he said. ″In a strong market you’re not going to notice that. In a weak market, you will.″

Jeff Clee, a spokesman for British National Oil, said the trading company had telephoned its oil suppliers with price proposals for April, rather than following the former practice of notifying its suppliers by telex of a new official price.

″We’re not commenting on the actual levels of prices we’re discussing with suppliers,″ he said, adding that the company did not intend to comment on pricing any more.

British National Oil is committed to buying 51 percent of the production from North Sea oil fields. It was created to manage Britain’s North Sea oil sales. It formerly bought oil from suppliers at the official price and sold it on the spot market, often at a heavy loss.

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