Climbing out from under OPEC's thumb
How long will a band of 13 countries -- some of them small, barren, and obscure -- be able to bend the world beneath a growing burden of ever more costly oil?
Since the beginning of 1979, the price of oil, spurred by the Organization of Petroleum Exporting Countries (OPEC), has jumped more than 130 percent, draining billions of dollars away from productive investment in oil-importing lands.
The US will pay OPEC $80 billion to buy petroleum this year, up from $60 billion in 1979, although Americans are burning substantially less oil.
Economic growth in 24 leading Western nations, reports the Organization for Economic Cooperation and Development, may be reduced 5 percent by the end of 1981 because of OPEC's price hikes.
The cartel's actions have helped to shove the United States into deep recession and have slowed the growth of even the most prosperous Western lands, including West Germany and Japan.
Is there no end?
"The real story on oil prices," says Charles L. Schultze, chairman of the Council of Economic Advisers, "is the supply-demand equation.
"If supplies is tight, the consumer is going to pay higher prices, either to OPEC or to the oil companies. If supplies are ample, then price pressures will lessen."
Supplies are ample, both in the US and elsewhere, and prices in some cases have begun to soften.
For example, the US Department of Labor says gasoline prices declined 6.2 percent over the April-June period, after soaring at a 105.7 percent annual rate during the first quarter.
Spot prices for crude oil throughout the world have dropped, in some cases close to OPEC's "official" weighted average of $31.97 a barrel.
This is good short-term news. But does it portend the beginning of the breaking of OPEC's power to set the world price of oil?
Many experts doubt it.
"Currently," says Lawrence Goldstein of the Petroleum Industry Research Foundation, Inc., "OPEC is producing about 27.5 million barrels a day -- down nearly 3 million barrels daily from the end of 1979."
The non-Communist world, he adds, will need 27.5 to 28 million barrels a day from the cartel. "so the oversupply, or tenuous softness in the market, is in inventories, not in production."
In short, no matter how much non-OPEC producers -- Mexico, the North Sea, and others -- increase their output, the world still will need nearly 28 million barrels a day from the cartel.
Can OPEC's members, already sharply down from last year's production level, keep cutting supplies to hold prices high?
Some populous OPEC natons, like Nigeria and Indonesia, need all the oil revenue they can get to take care of their peoples. Sparsely populated desert lands -- Kuwait, Saudi Arabia, the Persian Gulf sheikhdoms -- have more money than they need.
So OPEC, taken as a whole, might whittle back a bit more. The key is Saudi Arabia, which -- for a variety of reasons -- has been pumping 9.5 million barrels daily from its desert sands, a million barrels more than its official ceiling.
If the Saudis go back to 8.5 erasing a million barrels a day from world supplies, prices may soar. Even at today's expanded Saudi production, official prices hold firm.
Beyond this, longer-term factors militate against optimism that OPEC's power may crumble soon:
* World demand for oil will climb again, when the US and the West generally shrug off the economic doldrums and start growing.
* Sometime during the 1980s, the US Central Intelligence Agency believes, the Soviet Union, now an exporter of oil, will become an importer. This would increase pressure on available supplies.
* Always possible is some kind of Middle Eastern upheaval, affecting one or more oil suppliers, which might -- as in the case of revolutionary Iran -- markedly reduce oil shipments.
These factors, taken together, help to account for the reluctance of oil-importing nations to cut their purchases from OPEC and work down ample stockpiles of oil.
Japan, for example -- which derives 75 percent of all its energy from imported oil and gets three-fourths of that from the Middle East -- has built up a stockpile to last more than 90 days in case of total shutdown.
Conservation, however important, cannot by itself break OPEC's yoke from off American, European, and Japanese shoulders, experts agree.
Alternative fuels must be brought into play. The goal of the West's seven leading industrial powers, spelled out at the recent Venice economic summit, is to "increase the supply and use of energy sources other than oil over the next 10 years," to replace the equivalent of 15 to 20 million barrels of oil a day.
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