OPEC aims for a unified front
Under tight security in Geneva, the elite of the oil world hope to head off another decrease in oil prices. Most of the rest of the world hopes they don't succeed.Skip to next paragraph
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The ministers of the Organization of Petroleum Exporting Countries face a tough choice: To preserve harmony they may need to let their members sell more oil. But that could increase downward pressure on prices.
Will that mean lower gasoline and energy prices in the United States and Europe?
Several experts say prices will probably not plummet. But since inflation has not gone away (it is currently running at 5 to 6 percent in the United States and higher elsewhere in the world), in ''real terms'' gasoline prices are already decreasing. The cost to fill one's tank at a service station is likely to remain steady, perhaps dropping a few pennies in different regions depending on local supply and demand.
At the least, most economists say, US energy prices should not rise in the near future. The overall economies of the US and most of the rest of the world will benefit from level - or slightly declining - oil prices. The energy component of transportation and manufacturing should stay under control, and inflation should remain moderate.
But there are several uncertainties in this forecast. OPEC disunity, an exceedingly mild winter, slow economies in Europe and Japan - these could cause oil prices to drop sharply. A turn for the worse in the Iran-Iraq war could cause prices to increase.
The OPEC ministers meeting today could end up in a repeat performance of what occurred last year at this time. OPEC members then could not agree on price and production ceilings. The meeting broke down, and OPEC members flooded the markets with cut-rate oil. Pressure on OPEC mounted in the next few months and eventually the official price was slashed from $34 to $28 to $29.
The most likely result of this meeting, OPEC-watchers concur, is that fractious infighting will be kept behind closed doors. In the end, the overall production ceiling could rise slightly. OPEC members probably will resolve to hold the line on production and prices, hoping that by next spring a recovering world economy will need more oil.
But any sign of disunity in OPEC ranks - or of widespread cheating on the quotas that individual OPEC members agree to follow - could cause oil buyers in Europe, Japan, and the US to begin selling oil held in their inventories in anticipation of a price drop next spring. That could put even more oil on the market and pressure prices downward. If this persisted for several months (abetted, perhaps, by a mild winter in the US and Europe) OPEC countries might be forced to renegotiate contract prices for oil. Prices could fall to $26 to $ 27 a barrel.
Conversely, a sudden turn for the worse in the Iran-Iraq war could endanger the flow of oil out of the Gulf. That could lead to higher prices, at least temporarily. As a hedge against this possibility, the Saudis have been stockpiling oil.
The Saudis, says Fred P. Leuffer, petroleum analyst with the Cyrus J. Lawrence Inc. brokerage firm of New York, want to maintain prices at their current level and might be inclined to let it drop somewhat. This is because the Saudis have 100-year reserves - far more than than any other producers - and look at ''maximization of present value'' far into the future.