Oil Prices Fall; Output Rise Awaited
After skyrocketing in recent days, crude oil prices tumbled Wednesday on reports that several OPEC members will boost production to make up for a worldwide embargo of Iraqi and Kuwaiti oil shipments. Meanwhile, one major West Coast oil company said it will freeze its fuel prices for a week.
Atlantic Richfield froze the fuel price it charges to dealers in response to President Bush’s request that oil companies hold the line on price boosts in the wake of the Iraqi occupation of Kuwait. The Los Angeles-based company was alone in the industry to announce a price freeze.
“We hope this move will bring some stability to the marketplace,” said George H. Babikian, president of Arco’s refining and marketing division. Arco said it will urge its dealers, who ultimately set the price at the gas pump, to also hold off on any increases during the weeklong period that began Wednesday.
However, Arco might announce an increase at the end of the weeklong freeze if prices at its 1,700 stations are 7 or 8 cents a gallon lower than the average market price. “If we are significantly below the market,” Babikian said, “we will be sold out and that will really cause a panic. We can’t afford for that to happen.”
A sense of panic still gripped energy markets, which reacted swiftly to unconfirmed reports of various members of the Organization of Petroleum Exporting Countries--including Saudi Arabia and Venezuela--agreeing to offset the loss of Iraqi and Kuwaiti oil on world markets. Mexico, which is not an OPEC member, said it would temporarily boost production 100,000 barrels a day.
Iraq was pumping an estimated 3.1 million barrels a day and Kuwait another 2 million barrels before an international boycott of those countries’ oil went into effect.
On the New York Mercantile Exchange, the price of crude oil to be delivered in September fell $2.35 to $25.96 a barrel Wednesday. Early last week, before the Iraqi invasion, crude prices were trading in the $20-a-barrel range.
On the spot market--oil to be delivered immediately--the price of a barrel of West Texas Intermediate, the benchmark U.S. crude oil, fell more than $2 to $26 Wednesday.
“Basically, the major oil (producing nations) have indicated a willingness to make more oil available, and that eases the tensions,” said Randall Rothenberg, a futures broker with Dean Witter Reynolds’ International Energy Futures Group in New York.
Traders also took heart from the dispatch of U.S. troops to defend Saudi Arabia’s oil fields, but any further fighting, bringing with it the threat of damage to oil production facilities and pipelines, would send prices shooting upward again.
“It’s a very nervous, it’s a very tense market,” said Tom Bentz, director of trading for United Energy Inc., a brokerage firm in New York. “If there is an exchange of fire, if something like that happens, the market is going to take off again.”
But the fall of prices in the energy markets had not yet influenced prices at the pump. After surveying 1,400 service stations, the American Automobile Assn. said the price of self-serve regular unleaded gasoline rose 3.6 cents Wednesday to $1.23 a gallon. Prices at the pump have risen 16.2 cents a gallon since Aug. 1.
Traders said Bush’s call for oil companies to “show restraint and not abuse today’s uncertainties to raise prices” was not much of a factor in the falling price of crude oil. Bush also said he would explore whether to tap the U.S. Strategic Petroleum Reserve, which holds about 600 million barrels of oil stored in case of a severe energy shortage.
“I don’t think (Bush’s statement is) the reason for the falloff,” said Rothenberg at Dean Witter. “I think there are far bigger issues at work here.”
Bush’s request also failed to stir much action among oil companies, with the exception of the price freeze by Arco, which said it was acting in response to it. Phillips Petroleum Co. said it had lowered its wholesale gasoline price at some terminals by up to 4.5 cents a gallon--a move that it said would be subject to daily review--but added that the move was in response to falling crude oil prices, not to Bush’s request.
Exxon, the nation’s largest energy company, said it would price its products “in a responsible manner that reflects overall market supply conditions.”
In a telegram to Bush, Mobil Corp. Chairman Allen E. Murray said: “I can assure you that we will continue to show restraint in the face of escalating prices for crude and petroleum products purchases by our U.S. marketing and refining businesses. While we have raised prices, to date we have recovered only a fraction of the higher costs incurred.”
BP America said it was looking “for opportunities to reduce some prices, if we can do that without generating a run on storage terminals that would prevent us from supplying our customers.”
“We cannot commit to a week (-long freeze) simply because the market is too volatile,” Chevron spokesman Mike Libbey said.
