Disarming the OPEC 'oil weapon'; Cartel members, shadowed by an oil glut, splinter in dissension. Meanwhile, Americans push ahead with conservation.
Washington — The "oil weapon" wielded with such great effect over the past few years by the OPEC cartel appears to have boomeranged, splintering the 13-nation organization into disarray.
Oil ministers of the Organization of Petroleum Exporting Countries, having failed in Geneva to reconcile their widely differing views, are appealing to their kings and presidents to take over the negotiating task.
The goal of the Geneva conference was to mold a unified pricing structure for OPEC, requiring Saudi Arabia to raise the price of its oil and the African producers -- Libya, Algeria, and Nigeria -- to lower theirs.
Implicit in the deal was an apparent understanding that Saudi Arabia, the giant of the cartel, would cut its oil output enough to reduce the current world glut of petroleum.
This oversupply, estimated at close to 3 million barrels a day, has forced OPEC to shrink its output from a high of 31 million barrels daily (m.b.d.) to less than 20 million now.
Especially hard hit are the African producers at the top end of the OPEC pricing scale, who have been forced to cut their production by half or more.
The OPEC cartel, which appeared to be so monolithic during the heady years of surging oil demand, in fact is made up of countries with very different needs.
They range from cash-rich, low-populated desert states like Saudi Arabia and Kuwait to countries like Nigeria and Indonesia, whose huge populations absorb all the money that oil can earn.
Two OPEC members, Iraq and Iran, are at war. Their combined exports total only 2 m.b.d., compared with 7 m.b.d. before they went to war and before the Iranian revolution overthrew the Shah.
All these differences were fairly well masked, during the years when oil-importing nations, including the United States, competed for every drop of available OPEC oil.
Now the US, which once imported 8 million barrels of oil a day, takes in a bit more than 5 million barrels.
When the 13 oil ministers met in Geneva this week, OPEC was operating on a two-tier pricing system. The Saudis charged $32 a barrel for their oil, while the other cartel members used a $36 benchmark price.
To this were added various premiums, based on quality of oil and nearness to market. A $5 premium brought the Africans up to $41.
To restore pricing discipline, the Saudis upper their oil production from 8.5 m.b.d. to 10.3 million. The Saudis, according to Saudi Oil Minister Ahmad Zaki Yamani, deliberately engineered an oil glut to force high-flying members to trim their prices.
With the high fliers apparently humbled, the Saudis proposed this week a new move down by the same amount. Premiums would be cut to a $3 a barrel maximum, giving OPEC a $34 to $37 range.
Moderate, medium-priced Venezuela -- supported by some other members -- said it could sell all the oil it wanted at $36 a barrel and would not come down. A consensus then formed for a compromise at $35 a barrel.
For reasons not yet fully clear, this compromise failed.
A $35-a-barrel price, experts says, could translate into a 4- or 5 -cent-a-gallon increase in the price of gasoline or home heating oil in the United States.
Because of lively competition to sell gasoline, some companies might not pass all the additional costs through to consumers, in which case the retail price boost would be less.
Even if Saudi Arabia cut its production to 8.5 m.b.d., said oil specialist John Lichtblau, "there still would be more oil available than is required.
Libya, meanwhile, has no oil weapon to use against the United States, said Mr. Lichtblua, despite the fact that Libya is the third largest foreign oil supplier to Americans, after Saudi Arabia and Nigeria.
"Nigeria," said Lichtblau, "would be happy to make up every barrel that Libya denied us."