High OPEC Production, Iran-Iraq Conflict Cited : Oil Prices Skid to Lowest Level in 22 Months

Oil prices tumbled more than 50 cents a barrel to their lowest level in 22 months Tuesday, reflecting high production by the Organization of Petroleum Exporting Countries and lack of progress in the cease-fire talks between Iran and Iraq.

Some analysts said prices could drop to $13.50 a barrel this week and possibly to less than $10 a barrel before year-end, a level not seen since oil prices crashed in 1986.

October crude oil futures fell a steep 55 cents to close at $14.24 a barrel on the New York Mercantile Exchange, the lowest price since Oct. 30, 1986.

“Before year-end, we could see a repeat of 1986, when prices fell to $9.75 a barrel,” said Nauman Barakat, analyst at Shearson Lehman Hutton Inc.

Other analysts were more conservative, however, saying the fall would be unlikely to take prices below the $13.50 level.

Barakat said that some of the same elements that pushed prices down in 1986 were present now.

“OPEC members want to increase production to get a larger share of the market, and the major oil companies are not pushing the cartel to firm prices because refining profit margins are so good,” he said.

Prices on cash markets in New York and Houston, where actual barrels are traded, recorded similar moves.

Gasoline prices followed the trend, with October unleaded gasoline down a steep 1.45 cents at 42.53 cents a gallon. October heating oil fell 1.17 cents at 41.71 cents a gallon.

“There is too much OPEC production and no progress on peace talks between Iran and Iraq,” said Peter Beutel of Elders Futures Inc.

Further From Goal

North Sea Brent, the international marker grade, fell 60 cents a barrel to a late quote of $13.50 for October loading.

The price fall puts OPEC even further from its goal of setting an $18-a-barrel benchmark price.

OPEC nations have been producing above their quota levels for most of the year, but fresh evidence that they are keeping their spigots wide open came Tuesday from the Paris-based International Energy Agency, which estimated OPEC’s August output at 19 million barrels a day, up from 18.7 million in July. Demand for OPEC oil, however, is estimated to be only about 18.2 million barrels a day, according to industry analysts.

The IEA said that although the OPEC production in August was the highest this year, the amount of oil entering the market may be less because several Persian Gulf states have leased tankers to use for storage.

However, stored oil will hang over international oil markets, keeping a lid on any price rises.

The IEA said OPEC’s production pushed world oil supplies outside the Eastern Bloc to 50 million barrels a day in August, the highest level since the fourth quarter of 1987.

A Reuters survey has put OPEC production at 20 million barrels a day in August, up from an estimated 19 million in July.

“Even if action is taken in November, we are virtually guaranteed weak oil prices in the first quarter of 1989, when demand is seasonally low,” one analyst said.

Agreement Is Key

The markets are focused on the attempt to work out a longer-term cease-fire between Iran and Iraq and to bring back restraint to production.

But the cease-fire talks have run into trouble, and the two sides have refused to accept a compromise formula on production proposed by OPEC Secretary-General Subroto.

“Unless OPEC comes to some sort of an agreement, production will continue to rise and prices will continue to fall,” a planner for a major oil company said.

Earlier this year, several oil companies and analysts had predicted that U.S. oil prices would end 1988 at between $18 and $20 a barrel, buoyed in part by strong seasonal demand late in the year to refine home heating oil for the winter.

But prices began weakening on the combination of climbing world inventories, continued OPEC overproduction and the unsuccessful efforts last week by Subroto to forge an agreement between Iran and Iraq.

However, some analysts suggested that OPEC may yet manage to end its disarray and halt the slide in world prices.

They said hopes about OPEC discipline may be revived when the group holds a meeting Nov. 21. A price committee meeting possibly before than could also help prices, they said. The cartel is expected to discuss the problem of the world glut.