Oil Prices Slip

Alas, it's only temporary

When supplies of anything get too large for their markets, prices come down--or at least they should. For all the power of the OPEC cartel, oil is proving to be no exception. A worldwide glut has developed as new supplies from the North Sea, Alaska and Mexico supplement oil from the Middle East and South America --at a time when the shaky world economic recovery cannot absorb all of it. One result: price shaving by most of the big producers. Kuwait, Iran and Saudi Arabia are all offering slight discounts of 100 to 300 off the price (about $13 per bbl.) of their heavy-grade oil, the kind that is refined to heat homes and factories.

None of the cuts are official to the point of showing up in written long-term contracts. Instead, the discounting is being done on the relatively volatile spot market, which accounts for a small part of overall sales. So far, the discounts have not spread to the most popular grade of oil, light crude, which is used for gasoline. Limited though they are, the price reductions have badly hurt Egypt, which needs all the money that it can get from sales of its heavy-grade oil. Venezuela, also a big producer of heavy oil, is attempting to buck the trend by increasing prices, mainly on long-term supply contracts.

Alas for consumers, the glut that is bringing on the discounting is not expected to last beyond the end of the year. Colder weather will then eat into stockpiles and redress the oversupply imbalance. In December, when OPEC's oil ministers meet again, prices could go up.

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