Mushy oil market shifts power in the industry from producers to buyers

Proceed with caution. That's the motto that many energy-industry representatives say they will adopt in preparing for expected oil-price drops and market volatility over the next year or more.

This week's announcement by the Organization of Petroleum Exporting Countries (OPEC) that it will risk tumbling prices to protect its share of the market -- on top of a substantial world oil surplus -- is likely to bring lower petroleum-product prices.

But analysts warn that consumers should prepare for the same type of price fluctuations that the industry will be wrangling with as an unprecedented restructuring of the oil industry continues.

The uncertainty that characterizes an industry once known for its cockiness and exploratory nature can be traced, analysts say, to one major change: No longer do a few multinational oil companies control a large portion of the world market, from oil field to gas pump and heating unit.

The trend has accelerated as more countries have become oil producers in recent years. As the number of players on the world market has grown, so have sources of market volatility. That growth has also lead to the 10-million-barrel-a-day oil surplus that has shifted market control to the buyers.

``A significant change in the balance of power from producers and suppliers to buyers is the dominant motif now ruling the oil market,'' says Daniel Yergin, president of Cambridge Energy Research Associates.

Dr. Yergin, speaking here last week at an oil-industry symposium, suggested that gasoline prices might drop as much as 10 cents a gallon over the next two to three years. But he added that consumers should expect to see product prices ``bouncing around a lot more,'' reflecting fluctuating prices among growing numbers of suppliers. ``The consumer might be confused, but the overall trend will be down,'' he said.

Among many industry representatives there is caution but little of the deep pessimism that characterized the period following the oil price collapse of 1982. The big difference, analysts say, is that back then the industry was primed for price increases through the end of the decade. Now, prices that would have seemed devastating a few years ago are considered by many to be acceptable.

``We can still make money if the price of oil drops to $20 a barrel,'' says Robert Mosbacher, chairman of Mosbacher Energy Company.

Another factor is that companies who have survived the industry downturn are leaner, having already trimmed thousands of workers and cut back on exploration and drilling.

This shrinkage in oil-related activity explains why the oil-service sector of the industry, and to some extent independent producers, are the most pessimistic. Without revenues from major reserves and sales from field activities to count on, those sectors have been the hardest hit by the downturn -- and face the roughest go as a result of two to three years of falling prices.

Raymond Hefner, chairman of the Independent Petroleum Association of America, estimates that more than one-third of the nation's independent oil producers have gone out of business since 1981. More than 100,000 oil-service jobs have been lost in Texas alone.

Falling prices over the next few years will mean further job losses as companies continue to consolidate and merge and exploration and drilling fall off.

But Richard Adkerson, director of oil and gas industry services for Arthur Andersen, says company acquisitions have drained money that once would have gone to exploration.

This trend, along with a drying up of outside capital and greater company debts from acquisitions, ``may well lead to substantial future declines in US oil and gas reserves,'' says Mr. Adkerson, and thus to greater reliance on foreign oil.

This leads a number of oil-industry leaders to warn that the US may be leaving itself vulnerable to a repetition of the oil shortages of the early 1970s. ``It will probably take another jolt or interruption of supply'' before the public will realize the potential for shortages, says Mr. Hefner. He cites ``a flare-up in the Middle East any time over the next few years'' as the sort of jolt he's talking about. But others have their doubts. Yergin points to the Iran-Iraq war and says, ``We've watched that war heat up, the attacks on [Iran's oil facilites at] Kharg Island, but it's had no effect on world supplies or prices. That says something.''