THE likelihood of falling oil prices -- due to the resolve of the Organization of Petroleum Exporting Countries (OPEC) to take whatever steps necessary to hold its world market share -- is welcome for a global economy whose growth has begun to lag. The impact of that decision can be simply put: lower global inflation, faster economic growth, and some relief for many debt-burdened third-world nations dependent on oil imports. In the industrial nations of the West, consumers should find lower gasoline prices at the pump, as well as lower prices for home heating fuel after the winter demand peak.
Clearly, OPEC is taking a calculated risk by announcing it's abandoning its efforts to maintain a $28-a-barrel benchmark price on oil to bolster its sagging market share, now down to around one-third of all oil sold in the noncommunist market. If noncartel producers such as Britain, Norway, and Mexico continue output at existing levels, or boost output to offset declining revenue, there could be a sharp drop in world prices that no combination of producers could arrest. That would harm the world econom y: Price stability for commodities like oil means economic stability for producer nations.
For the moment, however, prices are expected to fall to the $20-to-$23 range, from around $27 a barrel. That decline alone could help ensure a growth rate for the giant US economy of between 3.5 percent and 4 percent -- thus helping to keep the global recovery on track.
World policymakers and private citizens need to take advantage of the prospects of the lower prices. Some steps:
Consumers should continue conservation efforts.
Given the prospect of greater disposable income resulting from lower energy prices, nations should stem protectionism -- while easing trading rules -- to increase world trade.
International banking and lending agencies should review debt contracts of non-OPEC oil producers to prevent hardship as oil revenue presumably declines.
State and local regulatory agencies should ensure that lower wholesale prices are passed along to consumers.
Washington should complete the underground Strategic Oil Reserve. The United States must never allow its independence of action to be compromised by world oil producers.