Oil prices: How much more can world afford?
Washington — Again OPEC debates how much to squeeze peoples around the world who must import fuel to run their factories, homes, and cars. Already, the price of oil has crept up more than $3 a barrel since the beginning of 1980, siphoning still more millions of dollars from oil-consuming nations into cartel coffers.
How much extra can oil-importing nations afford to pay, without plunging the world into depression?
This question lies before oil ministers of the 13-member Organization of Petroleum Exporting Countries (OPEC), meeting in Algiers this week to set production and pricing policies for the months ahead.
They seek to define the point at which world supply and demand are in balance , forcing consumers to pay high prices because they need every drop of oil the cartel will produce.
"This year, the noncommunist world will need 27.5 million to 28 million barrels of OPEC oil daily," says Lawrence Goldstein of the Petroleum Industry Research Foundation Inc.
This is considerably less than the 30 million to 31 million barrels a day that cartel members were pumping at the end of 1979.
Recession in the United States, linked to a general world economic slowdown, is reducing demand for oil from OPEC, which produces roughly 85 percent of all petroleum moving in international trade.
Currently, for example, Americans import about 17 percent less oil than they did in the comparable period a year ago, according to the US Department of Energy.
Why has this not produced a glut of oil in the world, forcing prices down?
Because OPEC -- carefully weighing the world situation -- has cut back its output sharply. Today the 13 cartel members pump about 28 million barrels a day , maintaining a tenuous balance between supply and demand.
Key nation at the algiers meeting is Saudi Arabia -- largest producer within OPEC, No. 1 supplier of foreign crude oil to the US, and, at $28 a barrel, lowest-priced seller among the cartel's 13 members.
Powerful as they are, the Saudis have lost the ability to restrain prices. Progressively they have raised the cost of their oil in stages from $18 a barrel to the current $28, hoping each time to coalesce other cartel nations around that figure.
Each time other OPEC powers have simply leapfrogged the Saudis, maintaining a price edge of at least $2 a barrel over the cost of Saudi crude.
To make their price hikes stick, several cartel members -- Kuwait, Venezuela, Libya, Abu Dhabi, and Iran -- have cut their output enough to keep the world thirsty for oil.
They would like the Saudis to do the same -- to trim their output from 9.5 million to 8.5 million barrels daily, enough to create a shortage in the world, touch off a scramble for supplies, and set the stage for higher prices.
So far Saudi Arabia has rejected cartel pressure to plunge the world into a shortage of oil.