Oil Prices Plummet to 9-Year Low

Oil prices plunged Monday to levels unseen in nine years, after Saudi Arabia dashed hopes that OPEC nations would act quickly to slash production. The Saudi action appeared to clear a path for a continued downward spiral in world markets.

In New York, crude oil for delivery during April ended down 62 cents at $14.29 per barrel, after crude prices fell to a nine-year low Monday.

On Sunday, Saudi Arabia, which holds 25% of the world’s oil reserves and pumps more than any other country, issued a stern warning to OPEC’s quota-busters, saying it would not let rivals grab its own hard-won customers.

Saudi Oil Minister Ali al-Naimi said his country will not attend a proposed OPEC emergency meeting next week, and instead will batten down the hatches in preparation for a lengthy storm on world oil markets rather than give up customers to rival OPEC producers.

His remarks were aimed chiefly at Venezuela, OPEC’s biggest quota-buster, whose oil minister, Erwin Arrieta, has said the country will not cut output “even by one barrel.” Nigeria and Qatar also are pumping more oil than their OPEC quotas.

“These countries should take significant and tangible steps to reduce their production,” Naimi said Sunday in a statement carried by the official Saudi Press Agency.

“We do not want to reduce production to find out that other countries, especially those who do not adhere to their quotas, [are] flooding the market, [taking] our valuable customers,” Naimi said.

The slide in oil prices may only be interrupted if OPEC does something about production issues, or if Iraq should break its promise allowing United Nations teams to carry out their tasks under the latest U.N.-Iraq agreement, analysts said.

The Organization of Petroleum Exporting Countries has pondered holding an emergency meeting next week. But unidentified OPEC sources told Dow Jones that Naimi notified the others that he won’t attend a Monday meeting of the group’s monitoring panel.

OPEC’s president, Ida Bagus Sudjana of Indonesia, had invited all ministers to the meeting, raising the possibility that cutbacks in output would be considered. But Venezuela had already said it won’t attend.

The main question hanging over the market is: How low will the price of oil go before one of the two antagonists--Saudi Arabia or Venenzuela--in the latest OPEC squabble will blink?

“I’m sure there is a level below which they cannot continue the status quo,” said Manouchehr Takin, a senior oil analyst at the Center for Global Energy Studies in London.

But Takin was not making any bets on what the magic number might be for the 11-nation OPEC. He predicted current prices will force some small operators in places such as Texas and Oklahoma to shut down high-cost, low-volume oil wells.

Brent crude oil for April delivery fell 64 cents a barrel, to $12.95, on Monday on the International Petroleum Exchange in London.

On Friday, the spot month contract in New York had plunged below $15 per barrel for the first time since April 1994.

Oil prices have been sinking since OPEC decided in November to increase its stated output ceiling by 10%--just as world demand for crude was slowing because of the Asian economic crisis. A relatively mild winter in parts of the United States also has reduced demand for home heating oil.

The decline in crude prices has led to sharply lower gasoline prices across the United States. The national retail price for regular gasoline dropped to slightly below $1.02 a gallon this week, the lowest level since April 1994, the Energy Department said Monday.

Since reaching a peak in August, the price of gasoline has dropped by about 23 cents a gallon.

In Southern California, prices below 90 cents a gallon for self-serve regular have become routine.

But the slump in crude prices has also raised concerns that the oil industry will cut back its exploration efforts. The Philadelphia Oil Service Sector Index, which contains the stocks of 15 of the largest providers of oil-drilling services and equipment, fell 4% on Monday and has tumbled 26% since November.

In the past, Saudi Arabia has acted as a “swing producer” within OPEC, adjusting its own massive production as necessary to stabilize volatile global markets.

But Naimi said in remarks Sunday that Saudi Arabia has “abandoned once and for all the role of swing producer.”

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Still Falling

Oil prices continued their downward trend Monday. New York spot prices per barrel, weekly closes and latest:

Monday: $14.29

Sources: Bloomberg News, Associated Press