Oil Prices Slide Again After OPEC Meeting Ends Without Results

Oil prices tumbled toward $15 a barrel in wild trading Tuesday, the lowest level since the late 1970s, after an OPEC meeting broke up without devising a strategy to defend the cartel’s share of the oversupplied market.

“Put on your hard hat. The sky is falling today,” said Peter Beutel, assistant director of Rudolf Wolff Energy Futures, a New York commodities futures trader. “There is violent trading back and forth.”

On the New York Mercantile Exchange, the March delivery price of West Texas Intermediate, the best-known U.S. crude, plummeted to $15.44 a barrel from Monday’s close of $17.36. In Europe, Brent crude, produced by Britain in the North Sea, traded for $15.50 a barrel in the open market, also the lowest this decade.

“The market is continuing its careening tailspin here,” said Andrew Lebow, an oil futures analyst at Shearson Lehman Bros., a New York investment firm. “We’re in a situation where people are just afraid to buy.”

Price Halved Since November

It was the latest in a slide that has halved the price of a 42-gallon barrel of oil since November and caused a decline of more than a third since the year began, aggravating bitter frictions within the 13-member Organization of Petroleum Exporting Countries, the once-mighty cartel that used to dictate prices.

“There have been fissures in OPEC for the last few years, but now they’ve become Grand Canyons,” said Carol Epstein, managing editor of International Petroleum Finance, published by the New York firm Petroleum Analysis Ltd.

Combined OPEC production is believed to be 18.5 million barrels a day, while world demand for its oil is about 15.5 million barrels a day. Members have been unable to unite in a common strategy to reduce the supply.

Despite the price decline, U.S. consumers have not yet seen a similar drop in retail gasoline costs, partly because the price for long-term contracts on oil remains several dollars higher per barrel than in the spot and futures markets.

Dealers May Keep Cost Savings

Some analysts are predicting that domestic gasoline dealers will keep most of any cost savings to compensate for sharply higher overhead such as rent and insurance payments.

“The consumer can be confident there will be a fall in price, but it will be almost insignificant compared to the drop in other sectors,” said Daniel Lundberg, publisher of the Lundberg Letter, a weekly publication based in Los Angeles that reports on gasoline prices.

Uncertainty over the future direction of oil prices intensified after a special OPEC committee concluded two days of meetings in Vienna.

OPEC’s president, Venezuelan Energy and Mines Minister Arturo Hernandez Grisanti, told reporters that the participants had agreed on ways of attaining what he called a fair market share. But he refused to give details and later admitted that “as yet, we do not have a new strategy.”

Traders also reacted to reports indicating that Saudi Arabia, Kuwait and the United Arab Emirates want to flood the market with oil to defend OPEC’s market share, which has fallen from two-thirds to less than 40% since the 1970s because of competition by non-OPEC producers, especially Britain, Norway and Mexico.

Libya, Algeria, Iran and other OPEC members want a drastic production cut, claiming it will end the glut and force prices up.

Their differences with richer OPEC nations have become so bitter that, on Monday, Iran threatened to break relations with the Saudis.

The speed and size of the price drop has led to what analysts call major realignments in the world economic equation that will generally benefit the United States, Japan and other industrialized oil importers but threaten poor exporters already hobbled by massive foreign debts.

At the same time, the decline has hurt the domestic U.S. oil industry, caused a sharp drop in exploration and worried Western banks that have lent large amounts of money to oil exporters.

“On a global basis it’s good, but you’ll have isolated patches of devastation,” Epstein said. “Obviously Mexico is in the worst position, between a rock and a hard place.”