Oil Producers Talk but Fail to Halt Price Drop

Oil prices plunged by as much as 56 cents a barrel Monday after oil ministers of the Gulf Cooperation Council failed to take concrete action at a weekend meeting in Doha, Qatar, to help OPEC salvage its pricing and production agreement.

On the New York Mercantile Exchange, West Texas Intermediate, the benchmark U.S. crude for April delivery, tumbled by 56 cents to $17.08 a barrel, the lowest level since it closed at $16.91 a barrel on Dec. 23. The crude traded as high as $18.87 on Jan. 22.

Unleaded gasoline for immediate delivery nose dived by 1.57 cents to 46.99 cents a gallon, and home heating oil fell by 1.62 cents to 49.05 cents.

Spot Market Decline

West Texas Intermediate dropped by 20 cents to $17.40 a barrel on the U.S. Gulf Coast spot market, where oil is sold to the highest bidder.

On the European spot market, Britain’s North Sea Brent crude slipped by 25 cents to $17.05 a barrel.

In Kuwait, Oil Minister Sheik Ali al Khalifa al Sabah said international oil companies will face “severe and collective measures” from the Gulf Cooperation Committee if they try to derail OPEC’s Dec. 20 agreement to cut production by 7.2% and raise oil prices to an $18-a-barrel average.

Industry observers said the unwillingness of some major oil companies to enter into long-term contracts to buy OPEC crude at the new official prices has intensified pressure on weak cartel members to overproduce and discount their oil.

Al Sabah and the oil ministers of Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman--members of the six-nation council--met Sunday in Doha to discuss the deteriorating oil market. All but Bahrain and Oman belong to OPEC.

Oil prices have fallen by nearly $2 a barrel in the past five weeks on reports that the Organization of Petroleum Exporting Countries is exceeding its production ceiling of 15.8 million barrels a day, which was imposed to lift prices to its $18 target.

Adherence Pledged

The six oil ministers affirmed the council’s “full support” and “strict adherence” to the OPEC agreement but failed to act on eliminating overproduction by Kuwait and the UAE, which are among four cartel members reportedly violating their national output quotas.

“The GCC meeting smacked a bit of being confrontational vis-a-vis the oil companies, but internally it boils down to jawboning,” said Sanford Margoshes, analyst at Shearson Lehman Bros. in New York.

“While the market skepticism about a near-term strengthening in oil prices is justified, I think OPEC will muster sufficient discipline to keep things from getting out of hand,” he said. “Nevertheless, the recent price weakness has been a little more precipitous and occurred sooner than I expected.”