Texaco Cuts Prices; Algeria Keeps OPEC’s Highest Oil Price Unchanged
Undated (AP) _ Texaco Inc. on Thursday became the first major oil company to cut the price it will pay for the top grade of U.S. oil to $28 a barrel, announcing a $1 reduction in its posted price for West Texas Intermediate crude.
Meanwhile, Algeria’s official news agency reported that the north African nation will keep OPEC’s highest oil price unchanged at $30.50 a barrel in January.
In cutting prices of West Texas Intermediate and eight other grades of oil, Texaco said, ″crude oil prices in the United States are being driven down by the continued decline in petroleum product prices, caused in part by a high level of imported petroleum products.″
As recently as October, the U.S. oil industry was still quoting a price of $30 a barrel for West Texas Intermediate. Currently, the prices range from $29 a barrel among most major oil-producing companies to a low of $25.90 by companies that predominently refine oil produced by others.
Among big companies still holding at $29 a barrel are Exxon Corp., the world’s largest oil company; Chevron Corp.; Standard Oil Co. (Indiana); Atlantic Richfield Co.; and Shell Oil Co. No. 2 Mobil Corp. has a $28.75 price for a barrel of West Texas Intermediate.
Sanford Margoshes, an oil industry analyst for the investment firm Shearson Lehman-American Express, said that in one sense, Texaco’s action was of ″relatively minor significance″ because the company was following the market in cutting prices.
In the spot, or non-contract market, West Texas Intermediate for February delivery was quoted Thursday at $25.70 a barrel.
But Margoshes added that Texaco’s cut was significant in that it was the first move to $28 a barrel by an Aramco partner.
Exxon, Mobil, Chevron and Texaco are all partners with Saudi Arabia in Aramco, the Arabian American Oil Co., and the partners, ″try to resist doing anything that would make life more difficult for Saudi Arabia,″ Margoshes said.
Saudi Arabia has been trying to defend the official $29 price of Arabian Light oil, the benchmark blend of the Organization of Petroleum Exporting Countries and a grade of lower quality that West Texas Intermediate.
Margoshes also said major integrated oil companies, which produce oil and refine and sell petroleum products, ″have a vested interest in keeping prices high.″
To those companies, oil reserves underground are their single most valuable asset, he said, and the value of that asset is determined by the prevaling price for oil.
Meanwhile, the Algeria Press Service said Thursday that Sonatrach, the government-owned oil company, has informed customers that it would leave its prices unchanged until OPEC reaches a satisfactory agreement on the issue of realigning the prices of its various grades of oil. Ministers of the 13-nation cartel are expected to meet in Geneva, Switzerland, on Jan. 28, although OPEC has said it is still consulting members about the date.
Last month, Algeria and Nigeria both refused to follow an OPEC plan that would have lowered the price of light grades of crude oil, like their blends, by 25 cents a barrel, while raising heavy grades by 50 cents and increasing medium-grade crude 25 cents. The plan left OPEC’s benchmark Arabian Light grade unchanged at $29 a barrel, a level it has held since March 1983, when it was cut from $34.
Algeria produces about 700,000 barrels of oil daily and supplies about 6 percent of the oil and petroleum products imported by the United States.
The price realignment was adopted to reflect a change in preference by oil- consuming nations.
Until recently, OPEC’s customers preferred to buy light oils because of the ease in converting them to refined petroleum products, such as gasoline, jet fuel and heating oil.
But following the steep runup in light oil prices in the previous decade, from $2.75 a barrel for Arabian Light to $34 between 1973 and 1981, it became economical for refiners to remodel to process heavier, less expensive oils.
The rapid rise in oil prices also led consuming nations to adopt conservation measures and shift to other fuels, leading to depressed demand for oil and a glut of petroleum that persists on world markets.
As a result, heavy oils are selling at a premium over official prices, while producers of light oils are unable to find buyers at official prices.