Oil prices are on the brink of tumbling further and faster than expected even a few days ago, traders and industry analysts here and in Rotterdam believe. It could be one of the most dramatic periods of world economic history since prices kicked upwards 10 years ago.
Following the $3 price reduction by Britain and the $5.50 cut by Nigeria in response, experts see crude oil prices falling fairly quickly - by as much as $ 10 below the official OPEC price of $34 a barrel. Spot prices could sink even closer to $20 dollars, some analysts believe.
''The trapdoor is well and truly open,'' comments one seasoned industry analyst here in an interview.
A mix of economic desperation and fierce Middle East politics could shatter the hopes of OPEC, major oil companies, and international bankers that a price fall be gradual and controlled, analysts say.
''We're in unknown territory,'' says a major oil company official.
It's good news for home owners, motorists, and the industrial world. But analysts warn no one yet knows how long it might take for price cuts to stimulate the economies of North America and Europe.
A free-fall in prices could be bad news, however, for developing countries and for banks which have loaned heavily to them. Without a quick rise in global demand, which is considered unlikely here, countries like Mexico, Venezuela, Nigeria, and others which depend on oil exports could find hopes of extra revenues dashed.
The big unanswered question: Will sharply lower oil energy costs break the grip of world economic recession?
Analysts here and in Rotterdam agree that lower prices by themselves do not stimulate demand for oil. Only a major economic pickup will do that. Even then, analysts here think demand will never again lift to the levels of the 1960's, because of general caution and conservation.
By reducing its price by $5.50 per barrel, Nigeria has frontally challenged its OPEC partners, who had tried desperately to prevent Lagos from acting. In seeking to preserve the remnants of its power as a price-setting cartel, OPEC can: expel Nigeria; leave its own price at $34 a barrel; try again to set production quotas; or try to match the Nigerian cut with an even larger cut of its own.
Rumors swept the trading markets Feb. 21 that Saudi Arabia wanted a seven-dollar OPEC price cut, to $27 a barrel. That would put Arab light crude oil $3 a barrel below Nigerian light crude, a premium the Saudis and other Gulf States have always demanded on Nigerian, Libyan and Algerian oil. All three oils are of extra high quality.
But if OPEC cuts to $27, Nigeria is thought likely to go lower still. Its economy is in desperate straits. It depends on oil for 90 percent of government revenues, yet its production has sunk to a mere 500,000 barrels a day because of the world oil glut.
In addition, Iran has been undercutting the official OPEC price by $6 a barrel until now, to earn maximum revenue and punish Saudi Arabia for helping Iraq. Iran's actions would take spot market prices down to close to $20.
For major oil companies, the prospect of prices spiraling downward is bad news indeed, spokesmen say. The companies buy oil mostly under contract, at the official price. They now face seeing official prices go down - but spot prices fall even faster, leaving companies no better off.
OPEC has yet another major worry. Britain, the fifth largest oil producer in the world, has just told its suppliers it intends to cut the prices it will pay for North Sea oil by three dollars (and in some cases $3.45) a barrel. It expected that Nigeria would match it with an equal cut.
But Lagos has gone further. It has cut its official price to fifty cents a barrel below North Sea crude - and it has another fifty-cent advantage per barrel because of its excellent quality.
British Petroleum, Shell, and other suppliers of North Sea oil now want the British National Oil Corporation to come down by another dollar a barrel at least. If Britain does so, however, Lagos may lower its own prices yet again, since the Nigerian government has said it will match British cuts ''cent for cent.''