Oil Prices Continue to Slide to Lowest Levels in a Decade

Oil prices tumbled to the lowest levels in nearly a decade Tuesday amid predictions that they could fall below $10 a barrel by summer unless OPEC slows its oil pumps.

On the New York Mercantile Exchange, oil for April delivery closed down 5 cents at $13.23 a barrel, their lowest level since November 1988, after trading briefly below $13 a barrel. On Monday, oil plunged 78 cents.

Prices, when adjusted for inflation, are holding at 1960 levels, when the Organization of Petroleum Exporting Countries was formed.

A consulting firm headed by former Saudi Arabian Oil Minister Sheik Ahmed Zaki Yamani said single-digit oil prices are possible in the near future.

Pressured by up to 2 million barrels per day of surplus oil, prices are some 40% below their 1997 average of $19.30.

“If it’s left to the speculators, the price will go lower,” Russell Hill of Austrian oil company OMV said.

He said prices will stay on the defensive with OPEC’s supply growing and possible increases in Iraq U.N.-monitored oil exports.

Also weighing on the market are huge inventories of oil in the United States, Japan and northwest Europe, which are at nine-year highs.

Oil could dip below $10 a barrel by summer and drop to just $7 later this year unless OPEC substantially reduces supplies, London’s Centre for Global Energy Studies said.

“A tidal wave of oil is waiting to engulf the industry this year unless something is done,” said the think tank headed by Yamani. “OPEC is at an impasse. Only the depth of the price fall could make its key members change their tune.”

The oil cartel pumped 28.7 million barrels a day in February, or 1.2 million above its official ceiling.

The plunge in prices has gouged a gaping hole in OPEC members’ revenues.

For example, every dollar below the forecast price for Saudi Arabian crude means a $2.5-billion loss for the kingdom.

The price of OPEC’s basket of seven types of crude oil fell to $10.91 a barrel Monday, down from $11.54 a barrel Friday.

Analysts said the slump could easily deepen if OPEC fails to respond quickly.

“The market is saying they don’t believe OPEC can do anything,” Hill said. “But OPEC is the only key to the market [recovering].”

He said that in real terms, prices were lower than during a price crash to single digits in 1986 and this was gradually building the possibility of a longer-term floor to the market.

Dealers said postponement of OPEC’s Market Monitoring Committee meeting to March 30 from Monday had reaffirmed the impression that the group was in disarray.

The committee, made up of oil ministers from Iran, Nigeria and Kuwait, had been due to assess member compliance with new output quotas agreed to at OPEC’s last full meeting in November.

Its decision then to raise output allocations by 10% and continued quota-busting by leading cartel members have helped create the 40% slide from last year’s price.

Saudi Arabia, the world’s largest exporter, is locked in a dispute with Venezuela, OPEC’s biggest quota violator, over responsibility for the price fall.

Venezuela has rebuffed calls for an emergency meeting. But on Monday, its finance minister reduced for the second time this year the nation’s forecast for economic growth because of slumping crude oil prices.

Finance Minister Freddy Rojas Parra said the government’s new growth forecast is 4%, down from the 4.5% it had previously announced. At the start of the year, the forecast was for 6% growth.

Further agony is ahead later in the year when a United Nations plan to more than double the value of its oil-for-food deal with Iraq will add several hundred thousand barrels of extra oil to the world market.