And now -- $29 per barrel
The Western industrial nations, including the United States, have a major stake in the intensive efforts of the Organization of Petroleum Exporting Countries (OPEC) to hammer out a durable production and pricing agreement.
What is important to the rest of the world in the London negotiations is that OPEC's benchmark price for oil crude be kept at a realistic level which meets at least two objectives: It is desirable that the price be low enough to give relief to hard-pressed oil-importing nations so that funds spent on imports can be better used for investment in new plants and construction. At the same time the price should be held high enough - certainly well above $20 a barrel - to encourage oil exploration and conservation and boost development of alternative energy sources.
Can the new price of $29 a barrel announced yesterday, down from $34, be maintained - and thus meet these broad objectives? Given the turbulence in OPEC and indeed the entire world oil market, it would be foolhardy to predict that the 13 OPEC producers will at last put their national rivalries and differences behind them long enough to enforce a new agreement.
Carrying out any new agreement will be most difficult. Just to hold the $29 benchmark price, all 13 nations will have to make certain that the overall production ceiling of 17.5 million barrels a day is not exceeded in the least - a considerable challenge, since some producers such as Venezuela, Indonesia, Nigeria, and Iran have compelling internal reasons for increasing output to obtain oil revenue. OPEC will also have to deal with non-OPEC producers such as Mexico, Britain, Norway, and the Soviet Union. Price cuts, or production increases, by any one or any combination of these non-OPEC nations could quickly blow the new OPEC benchmark price out of existence.
In the face of the uncertainties in the international oil market, at least four steps thus seem vital for the United States:
1. The American government must do all that it can to protect gains already made in conservation and development. Therefore the White House should move swiftly to impose a new tax of at least $5 a barrel on imported oil. Many political leaders and oil analysts now favor such a measure, including Federal Reserve Board chairman Paul Volcker. President Reagan has the authority to impose such a fee under the Trade Expansion Act of 1962.
2. While prices are still low the US should move flat out to fill the strategic oil reserve. The current slowdown in filling the reserve is strangely inconsistent with the goal of achieving energy security.
3. Congress should expedite its study of Mr. Reagan's plan to deregulate natural gas.
4. American consumers - who have seen gasoline prices at the pump drop sharply in the past several months - must be alert not to return to the profligate energy habits of the past. The $29 benchmark price will most likely not by itself translate into significant new price cuts at the pump, and should thus work in favor of conservation measures as motorists approach the spring and summer driving seasons.
The long-range objective for the US, in short, must continue to be conservation and development of new energy sources. In the wake of OPEC's action it is necessary to guard against a return of national complacency.