OPEC hopes to settle price swings

At a historic summit in Caracas today, members of the oil cartel meet for the second time in 40 years.

With a world anxiously looking on like early-bird shoppers waiting outside a store, leaders of the Organization of Oil Exporting Countries meet in Venezuela this week for what is only the second summit of OPEC's 40-year existence.

And like good store managers, OPEC leaders will be thinking about keeping both themselves and their customers happy this time around.

When a young and cocky OPEC held its first summit in Algiers in 1975, the oil-exporting leaders thought they could change the world. They demanded a fairer shake for producers of the world's natural resources, including oil, generally located in the globe's impoverished south. They called it the "New World Economic Order." It never got off the ground.

A quarter century later, OPEC leaders gathering in Caracas today are more realistic. The 11 OPEC countries that produce 40 percent of the world's crude know they have an impact on a world where energy use and prosperity remain intertwined.

But as developing countries themselves, they also know they depend on the world's economic health.

Prospects for global economic growth are bright, according to the World Bank, but could be dashed by high and inflationary oil prices. Oil remaining above $30 a barrel would hurt rich countries, but would bury the growth anticipated next year in poor countries. Recognizing this context for their meeting, OPEC leaders will steer clear of the nitty gritty of short-term prices and production, but will work to convince the world that responsibility for expensive oil lies elsewhere - in speculation, high taxes, and low international refining capacity.

"The world's geopolitical situation has changed substantially since 1975, and OPEC itself has arrived at a stage of maturity," says Al Rodrguez, Venezuela's oil minister. As OPEC president, he and Venezuelan President Hugo Chvez will host a summit where they'll be feted for doing more than anyone else over the past 18 months to make OPEC a global force again.

It was largely Venezuela's failure to keep to OPEC production quotas that led to rock-bottom oil prices in 1999. Mr. Chvez took office in February1999, and went to work to convince OPEC countries to cut production to defend prices. His campaign restored OPEC discipline.

Chvez visited each OPEC country to highlight the organization's unity - even dropping in on Saddam Hussein in Baghdad, angering the US government. He emphasized that producers have a right to "just" prices for their oil and that the world has an interest in seeing a more equitable relationship between oil producers and wealthy consumer countries.

Underlying Chvez's dedication to OPEC unity is his personal campaign against the economic and intellectual elite, which he calls the "oligarchy," at home and abroad. Although not all OPEC members buy into the Chvez vision, there is general gratitude for the Latin leader's role in making the organization count again.

That recovered stature, Mr. Rodrguez says, makes a summit possible where OPEC leaders can "make decisions beyond prices and production." How to establish a stable oil market that reduces the price ups and downs that hurt both producers and consumers is the top item on the summit agenda.

"The idea will be to establish the responsibility and interest both producers and consumers have in stabilized prices," says Rafael Quiroz, a Venezuelan oil analyst. "High prices really frighten everybody, and that's because they're a reminder that low prices could return tomorrow, setting the same cycle in motion."

But the leaders will also take up the environmental challenges posed by their industry. Leaders will be looking for ways to deepen the participation of oil-producing countries in the value-added activities of the petroleum industry - thereby generating greater wealth.

"They want prices at a level where it's attractive for others to come into their countries to invest," says Manouchehr Takin, an analyst with the Center for Global Energy Studies in London. "But at the same time, they really don't want prices too high."

Aside from the dampening effect high prices have on global economic growth, "they know this encourages interest in energy alternatives that can compete with oil," adds Dr. Takin. OPEC is expected to explore the idea of drawing natural-gas production into its portfolio.

"The clean-air questions and other environmental issues are going to be at the center of the table. The oil-producing countries have a lot of work to do," says another Venezuelan oil analyst, Alberto Quirs. "I think we'll see a public agreement by OPEC countries to carry out serious scientific studies on just what impact hydrocarbon burning has and how it can be reduced," he adds.

One possibility Mr. Quirs foresees for OPEC funding such a project is redirecting money from the OPEC Fund for International Development. That fund, established by OPEC countries to finance third-world development, has disbursed nearly $4 billion over 25 years. While some observers have speculated that OPEC leaders might also create a program for delivering cheaper oil to the world's poorest countries, Quirs says: "You can forget about it."

Francisco Mieres, an oil analyst and vice president of the Venezuelan government's Institute for OPEC Studies, says that although Venezuelan officials have promoted facilitating oil sales to developing nations, "we recognize there are member countries that are rather conservative about this."

A more promising future probably lies in bilateral agreements, Mr. Mieres says, akin to the accord Venezuela is set to sign next month with Central American countries to lighten their energy-buying burden via low-interest credits.

Although the summit is a celebration of OPEC's regained force, the two-day meeting will also provide an opportunity to contemplate the organization's long-term prospects, observers say.

"Does it try to survive as a price-defending cartel?" asks Quirs. "Or is it going to join the free-market flow and take advantage of being the cheapest producer in the world?"

(c) Copyright 2000. The Christian Science Publishing Society

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