Oil Prices Drop as Saudis Lower Costs : OPEC: A new pricing formula may signal an end to the Saudis’ single-handed bid to support a sagging oil market.

Oil prices fell sharply today on fears that Saudi Arabia has abandoned its single-handed, monthlong attempt to support the sagging oil market.

Traders, alerted to a change in the kingdom’s oil price formula, said that the Gulf nation may now be intent on forcing prices lower to punish other OPEC members for overproducing crude.

The U.S. benchmark, West Texas Intermediate crude, fell 52 cents to $16.62 per barrel--its lowest level in more than two months--while overseas oil prices dropped even further.

North Sea Brent Blend, the most widely traded crude, was quoted below $15 a barrel for the first time since December, 1988. It fetched $23 early this year.

The latest fall in spot prices accelerated a steady decline of recent weeks that is taking the real value of the barrel, allowing for inflation, to levels last seen in the gluts of the mid-1980s.

The new drop reflects concern among traders that Saudi Arabia, exasperated by continued quota violations by others in the 13-member Organization of Petroleum Exporting Countries, may soon increase output again to punish the transgressors.

The fears were prompted by telexes that Saudi Arabia was lowering its contract price formula for its July oil shipments.

Several traders saw this as a signal that the Saudis might be getting ready to raise volume after a cut in its output in May, which it made under a new OPEC agreement intended to reduce the glut. Saudi Arabia has already made known that it is vexed by how few of the 12 other members joined in cutting output.

But Gulf sources said today that the kingdom regarded its pricing step as a marketing matter not connected with any decision on output. “We are still at quota and continue to be,” one said.

Western industry officials say that the Saudis will fix their July loading program in mid-June. If output indiscipline in the rest of OPEC is still trying their patience then, they could yet rescind their production cut.

“A lower pricing formula would help them push more volume if they wanted to,” said Steve Turner, an analyst with London stockbrokerage Smith New Court.

Saudi terms are based on a formula of average spot values minus a discount. Traders said Saudi Arabia was widening the discount by 35 cents to Europe, 40 cents to the United States and up to 70 cents for heavy grades sold in Asia.

The West’s energy watchdog, the Paris-based International Energy Agency, today assessed total OPEC output in May at 23.4 million barrels per day, down only 400,000 from April.

The new output agreement aimed to cut more than three times as much oil as that.