Price of Oil Continues Its Sharp Slide : OPEC Member Hints Cartel May Drop Its ‘Fair Market’ Policy

Oil prices continued their sharp decline Friday on both the spot and future markets, but a a prominent member of the Organization of Petroleum Exporting Countries appeared to back away from a new cartel policy that was partly blamed for the falloff.

Indonesian Oil Minister Subroto said OPEC has not committed itself to the “fair market share” policy that was widely promoted during its December meeting. Subroto, OPEC’s president until last month, said the cartel might set new price controls or take other steps instead.

In December, the 13-member OPEC had declared that it would do what was necessary to maintain what it considered its fair share of the world oil market. That could mean an increase in oil production that could drive prices of crude oil down to $20 a barrel, cartel leaders said at the time.

Since then, Saudi Arabia, OPEC’s biggest producer, is believed by some analysts to have raised production to as much as 6 million barrels a day, well above its OPEC quota of 4.35 million barrels daily. Other OPEC nations are also believed to have raised production.

The increased flow of crude oil, combined with relatively mild winter weather in Europe and the United States that lowered demand for heating oil, has created a glut of oil that threatens to worsen as the usual cold-weather period comes to an end.

In an abrupt erosion blamed largely on oversupply, prices for future delivery of crude oil fell another 58 cents per barrel Friday after a $1.04 decline Thursday. That left the price for February delivery of a benchmark crude oil called West Texas Intermediate at $23.53 a barrel on the New York Mercantile Exchange.

The prices of “futures” reflect speculators’ guesses at what market prices will be when the commodity is delivered. They do not control actual prices but tend to indicate future price trends.

Heavy Trading

Meanwhile, at least three more oil companies cut the prices they will pay now for the same type of oil to as low as $26.25 a barrel, representing declines of 75 cents to $1.25. Several others reduced their prices Thursday.

The falling oil prices led to heavy trading of oil stocks on the New York Stock Exchange, and several analysts cut their earnings forecasts for major companies.

Exxon, Mobil and Chevron were among the 15 most heavily traded issues Friday. The price of Exxon stock closed down 50 cents a share at $52.25, and Mobil lost 50 cents a share at $30.25. Chevron slipped 12.5 cents to $36.375.

Dean Witter analyst Eugene Nowak said he lowered his earnings estimates for Atlantic Richfield to $7.85 a share this year from his earlier forecast of $8.30. He dropped estimates on several other oil producers as well, he said.

Sees ‘Nothing Dramatic’

Subroto, talking to reporters in Jakarta, dismissed the reports of high Saudi production as a seasonal fluctuation and said he sees “nothing dramatic” happening in the world oil market for the next two months.

As for OPEC’s production plans, Subroto said cartel members will attempt to clear the air at a meeting Feb. 3 in Vienna. He listed four options:

- A continuation of a 1983 London agreement, which holds members to fixed price and production levels.

- Some mechanism to let prices follow the market while production is held at predetermined levels.

- A “fair world market share” for OPEC members.

- An income maintenance plan, under which prices and production would be tied to revenue targets for member nations.