What OPEC price hike means: gas a bit higher, recession a bit deeper
Through the murk and gloom of OPEC's pricing disarray, one fact stands out: Oil prices will inch up again and, to that extent, more money will flow out of the United States, Japan, Europe, and developing nations into the treasuries of 13 oil- producing states.Skip to next paragraph
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Nonmembers of the Organization of Petroleum Exporting Countries (OPEC), including Britain, Norway, Canada, and Mexico, also will grow richer, because they price their own oil in line with the cartel.
The giant US economy, already mired in recession, will be given an additional shove downward, because more dollars that might have been spent by American consumers for goods and services at home will flow abroad.
The same will be true of other industrial nations, such as Japan and West Germany, that import part or all of thier oil, postponing further the day when the world economy, now in the doldrums, begins to perk up.
As for individual Americans, the price of gasoline and home heating oil may go up by 1.5 to 3 cents a gallon, depending on what OPEC's various members do with prices.
Because record-high stocks of gasoline exist now in the United States and dealers are competing for customers, the upward movement at the pump may be slight.
But this is only part of the story in analyzing the relationship between oil prices and the agreement -- or lack thereof -- just reached by the Organization of Petroleum Exporting Countries in Algiers.
The 13 cartel members set the "base price" of oil in a range between $28 a barrel (the current Saudi price) and $32, with "premiums" of up of $5 a barrel for higher-quality crudes.
Though the Saudis and the United Arab Emirates -- now at $31.56 a barrel -- say they will not go up to $32, other OPEC members may do so. Some already above that level may take advantage of the "premium" clause to inch their prices toward $37 a barrel.
With world supply and demand roughly in balance, consuming countries appear to have little leverage to oppose the new prices, except through conservation -- that is, by buying less oil.
All these figures bandied about by OPEC oil ministers are so-called "official" prices. In fact, says a leading US oil analyst, "official prices mean little, because even the Saudis -- in the direct deals -- are charging a $3 - to $4-a- barrel premium, above their official price."
In other words, oil sold directly by the Saudi government (a small fraction of the total Saudi output) bears a surcharge above the "official" $28 figure.
Other OPEC members charge various kinds of premiums, or surcharges, including a fee to help finance exploration for new deposits.
These premiums add to the final price of oil paid by consumers and distort the already chaotic spread of official prices between Saudi Arabia's low and Algeria's high.
Such surcharges differ from, and come on top of, the "premium" of up to $5 a barrel allowed by OPEC for high-quality, low-sulfur crudes.
Apart from pricing, a tug of war goes on within OPEC about the level of cartel production, now roughly 28 million barrels a day.
Most OPEC nations want Saudi Arabia to cut its output from 9.5 million to 8.5 million barrels daily, to force world customers to pay whatever cartel members choose to charge. So far the Saudis refuse either to cut production or to raise prices.
Major free-world nations have built up large stocks of oil, but hesitate to draw them down lest political turmoil in the middle East deprive them of future supplies.