Cost of Oil Falls Another $2 a Barrel : OPEC President Says Cartel Doesn’t Intend to Start Price War

Oil prices eroded further Tuesday, falling by more than $2 a barrel despite an assurance from OPEC’s president that the 13-nation oil cartel does not intend to launch a global pricing war.

Stocks of many oil companies listed on U.S. exchanges lost more than $1 a share for the second consecutive day following the Organization of Petroleum Exporting Countries’ decision Monday to abandon a four-year effort to bolster world oil prices by curbing output.

Saudi Arabian Oil Minister Ahmed Zaki Yamani has predicted that OPEC’s determination to claim its “fair share” of the world oil market could drive down prices to $20 from the $27.50-a-barrel average that prevailed before the OPEC summit ended in Geneva on Monday.

Spot crude prices had dropped by as much as $1.30 a barrel Monday.

Each $1-a-barrel drop in crude prices theoretically translates into a savings of 2.3 cents on gasoline and home heating oil if passed through to the American consumer.

On international spot markets, where oil is sold to the highest bidder, West Texas Intermediate--the key U.S. crude--skidded by $2.25 to $25.15 a barrel and Britain’s North Sea Brent crude plummeted by $2.40 to $26.40, the Oil Buyers’ Guide in Lakewood, N.J., said.

“I can’t recall such a dramatic falloff in prices over such a short period of time,” said Jay Amberg, crude pricing editor of the trade journal.

On the New York Mercantile Exchange, West Texas Intermediate for delivery in January tumbled by $2.28 to $25.23 a barrel Tuesday in the largest across-the-board drop since it began trading in March, 1983. All other months declined by the maximum one-day limit of $1.50 a barrel, which will be raised to $2 today.

Home heating oil for delivery in January fell 4.49 cents to 75.11 cents a gallon, and leaded gasoline dropped 4.44 cents to 66.89 cents a gallon on the New York Merc.

Despite the stampede to sell crude, OPEC President Arturo Hernandez Grisanti told the Venezuelan state television station that OPEC was not embarking on a price war, the OPEC news agency reported.

“The responsibility of maintaining market stability cannot fall on OPEC shoulders only,” said Grisanti, who is also Venezuela’s oil minister.

“OPEC countries cannot continue retreating from the market,” he said. “We cannot continue lowering our share of the market and our production. We will not allow declines in our income.”

In 1979, OPEC supplied two-thirds of the West’s oil needs but now accounts for barely one-third in face of competition from outside producers, such as Britain, Norway and Mexico.

In London, the British pound slipped 2.5 cents to $1.437 amid fears that Britain would lose substantial oil revenue and taxes if a pricing free-for-all erupted.

“OPEC is banking on the hope that non-OPEC producers will be sufficiently scared by its action to voluntarily restrict production, but I don’t think it will work,” said William Randol, analyst at First Boston Corp. in New York.

In Britain, for example, the government has no power to order that oil production be curtailed, he said.

Randol said OPEC’s decision to stop propping up oil prices has increased the probability of a price crash into the teens.

“We’ve always talked in terms of a steady erosion in prices of $1 to $2 a barrel, but now we’re saying there’s a chance--still less than 50%--that things could unravel very quickly,” he said.