Oil prices continue decline with no end in sight
Dallas Morning News
Crude oil prices continued their startling collapse Monday, dropping
more than 5 percent to $13.28 a barrel -- a nine-year low that is
cheering motorists while alarming domestic producers and foreign
governments that depend on oil revenue.
In Dallas, self-serve unleaded gasoline can now be had for as little as
86.9 cents a gallon. Nationally, gas was averaging $1.01 a gallon last
week, down almost 20 percent from the end of 1996. Nationwide, gas
hasn't been this cheap since the late '80s.
Crude oil prices are likely to tumble through March, analysts said, and
that means consumers will find gasoline at even lower prices, especially
at the all-cash discount stations in the Dallas-Fort Worth area.
Away from the gasoline pumps, however, glumness is setting in over
the price collapse.
''This is worse than 1986, by far,'' said George Yates, president of a
small oil producers association, referring to the year when oil prices
averaged $14 a barrel and decimated Texas' economy. Yates believes
many small producers with wells pumping less than 15 barrels a day
will be forced to plug their wells at today's prices.
Other analysts were afraid to guess how far oil prices would drop. ''It
is a roller-coaster that is going down, down,'' said David Bellman, an
analyst at Purvin & Gertz, Houston-based energy consultants.
''Production is out of control.''
The price drop Monday on the New York Mercantile Exchange for
future contracts of West Texas Intermediate crude was triggered by a
number of factors, including the continued feuding between oil giants
Venezuela and Saudi Arabia over resistence to production cutbacks by
the Organization of Petroleum Exporting Countries.
Adding to woes is Iraq, which has hit the market with more than double
the oil production it had in December. Under special quotas imposed by
the United Nations following the Persian Gulf War in 1991, Iraq has
been severely restricted on its oil sales. After months of holding sales
down, a burst of 1.8 million barrels hit the market recently,
London-based analysts said.
Also, the Asian crisis continues to inspire fears fresh oil production will
not be soaked up in the region responsible for fully 40 percent of the
demand growth in recent years.
Oil prices are down 35 percent since OPEC announced last November
it would raise production 10 percent.
Over the last two weeks, efforts to gain discipline within OPEC broke
into very public bickering when Venezuela and then Saudi Arabia
refused to attend an OPEC meeting to discuss production and prices.
Last Friday, in Vienna, OPEC said they would postpone the meeting
until March 30.
Many analysts are skeptical, which is fueling the price drop. ''This is a
crisis of their (OPEC's) own making,'' said Leo Drollas, chief
economist at the London-based Center for Global Energy Studies. A
rollback to the old quotas has ''zero chance,'' he added.
Meanwhile, Venezuela energy officials have said they want to continue
to grab as much market share as possible. Half of the national budget
depends on oil revenue. In Saudi Arabia, the world's largest oil
producer, three-fourths of the national budget comes from oil revenue.
In the face of Venezuela's intransigence, the Saudi government is
reluctant to take a lead on production cutbacks that mean the Saudis
lose market share, analysts said.
For Mexico, a non-OPEC member, the feuding is particularly painful.
That country of 92 million is just recovering from a devastating
economic crisis. It, too, is dependent on the oil revenue.
Finance Minister Jose Angel Gurria said Monday that declining oil
prices had forced the Mexican government to consider additional cuts
to its budget, 40 percent of which was expected to come from oil
income. The Mexican government already cut $2 billion from its 1998
budget in mid-January because of declining oil prices.
Gurria, who was in Cartagena, Colombia, attending a business
conference, did not say how much more could be cut from the nation's
budget.
George Baker, managing principal of Baker & Associates, a
Houston-based energy consultant firm, doesn't expect the proposed
budget cuts to strike a major blow to the Mexican economy.
Mexico and Venezuela are considering boosting production to make up
for the drop in oil prices, Baker said, and such a move would be
counterproductive because overproduction brings down prices.
''It's a simple question of supply and demand,'' he said.
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