Rebound Follows Cutbacks by Iran and Egypt : Oil Prices Turn Sharply Higher

Oil prices turned sharply upward on Monday, halting a free-fall that had cut about 23% off crude prices in less than two weeks.

Analysts suggested several reasons for the turnaround, including announcements of production cutbacks by Iran and Egypt, delays in European shipments by the Soviet Union and technical factors in the market.

At the close of trading Monday on the New York Mercantile Exchange, March contracts for West Texas Intermediate, the benchmark U.S. crude, stood at $20.83 a barrel, up from Friday’s $19.50. In other trading, North Sea Brent crude sold for $19.45 a barrel for delivery in February, up from $18.65. A barrel is the equivalent of 42 gallons.

Gasoline and heating oil prices were also up sharply, with futures prices for West Texas Intermediate through August all selling between $20 and $21 a barrel.

Monday’s turnaround came after a seven-day price plunge that stirred panic on world markets before showing signs of stabilizing at the end of last week. But the closing levels were still down significantly from late November.

Amid a growing world glut of oil, the Organization of Petroleum Exporting Countries announced in December that it would stop trying to support prices by controlling production.

What had been a slow erosion of prices turned into a rout. A barrel of West Texas Intermediate, which sold for $31.70 on Nov. 20, stood at $25.15 on Jan. 15 and plunged to $19.50, an overall drop of 39%. After Monday’s trading, the price was still down 34% from November.

On Monday, North Sea Brent oil opened higher in London after reports that deliveries to Europe from the Soviet Union had been sporadic, analysts said. Last week, the Soviet Union reportedly was holding back oil.

Monday’s early trading also was bolstered by reports that Iran had said over the weekend that it would cut crude production by half to help prop up oil prices.

Under a 1983 OPEC mandate, Iran’s production quota was 2.4 million barrels a day. Iran never publishes production figures, but unofficial estimates put its current exports at about 1.6 million barrels a day.

Also on Monday, Egyptian Oil Ministry sources said that Egypt would cut its production--about 870,000 barrels--in two stages, to 770,000 barrels this week and to 720,000 next week, and would cut prices retroactively by up to $3 a barrel.

Analysts estimate that OPEC’s current combined daily production has been 17.5 million to 18 million barrels--about 2 million more than OPEC’s quota, aggravating the glut.

A cutback of 800,000 barrels daily in Iranian production thus would be significant--if it took place. But some analysts said they did not believe it. “I have trouble seeing a government that is engaged in a war, as Iran is with Iraq, deliberately cutting back on its major source of income,” said Peter Beutel, an analyst with Rudolf Wolff Futures.