Oil Prices Fall After Yamani Comment
JOHN C. GIVEN
Jan. 24, 1986
NEW YORK (AP) _ Oil prices have slipped again, shaken by a Saudi warning of possible world economic chaos, but stronger prices for future oil contracts indicated that some stability remained in the market.
Unconfirmed reports that Soviet Union oil was not being sold because of customer dissatisfaction with higher proposed Soviet prices helped bolster the market Thursday, analysts said.
When trading on the New York Mercantile Exchange stopped Thursday, contracts for March delivery of West Texas Intermediate, the top U.S. crude, stood at $19.82 a barrel, while the prices of all other monthly contracts through August were higher. A barrel is the equivalent of 42 gallons.
The Thursday price for West Texas Intermediate was down from Wednesday's $20.39 close, but its opening price was sharply lower - $18.75 - on the New York Mercantile Exchange.
That price reflected turmoil in the London market, where trading had been going on for several hours. When it ended, Brent North Sea crude for delivery in February was selling at $18.30 a barrel, up from a morning low of $17.70 but down from Wednesday's late price of $19.90 a barrel.
The turbulence began when Ahmed Zaki Yamani, the Saudi minister, told an interviewer that Great Britain and the non-OPEC producing nations must cooperate with the Organization of Petroleum Exporting Countries in limiting production to control prices.
Otherwise, ''There will be no limitation to the downward price spiral which may bring crude prices to less than $15 a barrel, with adverse and dangerous consequences for the whole world economy,'' he was quoted as telling OPEC's official news agency.
In New York later, after opening sharply lower Thursday, prices generally strengthended throughout the day - while still ending up lower than Wednesday's prices. February contract prices for gasoline and heating oil were down sharply.
Futures contracts for April through August delivery of West Texas Intermediate settled between $19.88 and $20.50 a barrel, indicating that the market is not yet betting on a fall beyond present levels.
''What the day tells us is, yes, in fact, there may be a floor to this whole thing,'' said Peter Beutel, an analyst with Rudolf Wolff Futures Inc., ''People just said, 'Maybe we've gone too far too fast in the last eight weeks.'''
William Byers, an analyst with the Bear, Stearns & Co. securities firm, said he thought ''the one single factor helping to firm things up was the Soviet announcement that they would restrict their crude sales at these price levels.''
Maureen Moloney, a trader at Merrill Lynch Energy Futures, also said reported Soviet announcement helped strengthen prices.
Since late November, prices have dropped more than one third to the lowest point in six years.
Producing nations have been pumping more oil than the world needs, hoping the inevitable price fall will encourage other producers to cooperate in restraining production.
In late November, a barrel of West Texas Intermediate traded at $31.70 a barrel. Last Wednesday, before the latest price drop began, it stood at $25.15. The spot price closed Wednesday at $20.90, up 80 cents from Tuesday. On Thursday, it was below $20 again. That makes a drop of 38 percent from November and 22 percent in barely more than a week.
Analysts had said Wednesday they sensed that the price free-fall was slowing, at least temporarily, with resistance at about the $20 level.
At the close of trading Thursday, unleaded gasoline was 59.70 cents a gallon, down from 60.25 cents, Regular gasoline was down to 59.30 cents from 59.32 cents. Heating oil for March delivery was 58.44 cents a gallon, down from 59.61 cents Wednesday. All contracts are for March delivery.
Despite Yamani's warning, Britain reiterated that it would not cut production. And in Quito, Equador announced that beginning Feb. 1, that it would sell as much oil as possible at market prices, formally abandoning higher fixed rates. Equador is a member of OPEC. Britain is not.
The glut of petroleum has resulted partly from a number of factors, including the oil price explosion of the 1970s, which encouraged conservation and fuel-switching that have undermined the price of oil.
Warmer-than-normal weather in much of America and Europe has depressed demand for heating oil in recent weeks.
OPEC announced in December that its members would seek a ''fair market share'' of the world oil market even if it meant cutting prices. OPEC produces only about a third of the world's output of oil.
Industry experts estimate that world demand for OPEC petroleum is 15 million or 16 million barrels a day, but that the producers are now turning out 17.5 million to 18 million barrels.
OPEC has announced that its oil ministers would meet in Vienna to discuss pricing and production strategies on Feb. 3.