OPEC hopes cold winter will help raise prices for its petroleum
OPEC's member nations are hoping for snow. The weather in the coming Northern Hemisphere winter will be a critical short-term hurdle for the Organization of Petroleum Exporting Countries and its fragile unity. Mild weather will cut energy demand, making for intensified competition among producers and holding down prices, already weak on the spot market.Skip to next paragraph
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But looking at the long term, OPEC ministers expect upward price pressures to resume. Hence last month's announcement by OPEC's Ministerial Committee that the current official production ceiling and marker price shall be maintained.
Dr. Mana al-Otaiba, committee chairman and oil minister of the United Arab Emirates, explained, ''There is no basis for changing the production quota.'' Holding the ceiling of 17.5 million barrels a day ''will help stabilize oil prices through 1984.'' But his projection of rising prices for 1985 bespoke an optimism notably absent from OPEC circles over the past year and a half.
Ill-concealed rifts among OPEC members have precluded agreement on a higher production ceiling. The hurdle has been the billion-dollar question of apportioning the extra output. Each member wants a disproportionate increase in its own quota. Reopening debate on quotas could unravel the agreement reached so precariously last March in London.
Some members are obviously cheating on their quotas, because total OPEC production is running about 18.5 million barrels a day - 1 million barrels above the prescribed quota. ''Mentioning names is outside of our tradition,'' Dr. al-Otaiba said, but added, with a grin: ''You all know who they are anyway.''
Despite the cheating - which is going on at a low level, without undercutting the market - OPEC's position today is much more comfortable than last winter. Anxious optimism has replaced desperation.
Total demand for OPEC oil is now a full 4 million b.p.d. higher than the low of 14.4 million which caused such anxiety in March. The knife edge on which OPEC balances has been very much blunted; the balancing act is safer and easier.
OPEC has succeeded in restoring a measure of control to oil prices - despite widespread skepticism and despite their own grievous doubts last winter about the possibilities for success. It is now recognized, with mixed feelings of relief and resentment, that the shock therapy administered by the Kuwaitis and the Saudis did work. By dramatically slashing the official price from $34 to $29 a barrel, and making credible the threat of cutting prices again, the Arab Gulf producers shocked the ''spoilers'' - Iran, Venezuela, Nigeria, and Libya - into curbing output.
Architects of the price cut knew they were running a risk but saw no other tactic. The spoilers had shaved prices and gained market share at the expense of the Arab Gulf producers, even while enjoying the protection of the latter's price umbrella. By precipitously removing the umbrella, the Gulf producers showed they would and could retaliate brutally. They offered the spoilers the option of curbing output to meet market demand or facing still another retaliatory price cut.
The strategy paid off, and the new market forces reflect that success. Now such adversary groups as OPEC and the Paris-based International Energy Agency both speak of rising demand for OPEC oil and augur stable prices. These are welcome prospects for the OPEC states but less cheery for consumers - despite the argument raised by OPEC's specialists that higher prices today forestall even higher prices later.
But of course no one can be certain where oil prices will go. They have continued to fall, in real terms, but even so, conservation is still eroding oil markets.
On the other hand, every additional percentage point in global economic growth adds about 1 million barrels to daily demand for OPEC oil. A modest recovery from the prevailing recession could wipe out the available oil surplus, especially since Saudi Arabia and Kuwait, for political reasons, may never restore their former production levels.