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OPEC: Down Not Out
| Article
# : |
10045 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
4 / 1986 |
1,991 Words |
| Author
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S. Fred Singer
S. Fred Singer, Visiting Eminent Scholar at George Mason
University and former director of the U.S. Weather Satellite
Program, is a pioneer in unmanned space science. His early
work included study of primary cosmic radiation and the
discovery of the equatorial "elctrojet" current in the Earth's
ionosphere. He also proposed to NASA the manned mission to
Phobos and Deimos now referred to as the Ph-D Project. |
A striking collapse in the price of oil ushered in the year 1986. Prices which had ranged to $28 a barrel in the preceding autumn were down to below $15 by February. Even if prices stabilize around $20, that will be a spectacular change with many ramifications for the United States, the world's largest oil consumer and second largest producer. For countries like Japan, which import all their oil, the effects of the price decline are clearly positive. For Middle East producers and the Organization of Petroleum Exporting Countries (OPEC) generally, the impact threatens their economic viability and even the stability of their governments.
The decade of the seventies was quite different, punctuated by two major price. Between 1971 and 1973, as OPEC took over oil concessions and gained power over the decisions of how much oil to produce, the price doubled, up to about $3 a barrel. But following the so-called Arab oil embargo in October 1973 the price shot up suddenly to $12-the "correct" level, considering the restraints on production put into place mainly by Arabian oil producers. The embargo never succeeded in keeping oil away from its intended targets, the United States and the Netherlands, but it created a panic on the oil market as buyers bid up price expecting an oil shortage.
The second "oil crisis" struck after the fall of the Shah of Iran in late 1978. By 1980, the price had tripled to about $36 as buyers around the world grabbed for the available oil to fill their stockpiles. But hoarding has its limits, and in the normal course of events this price should have returned to its "correct" level of $12 as the accumulated inventories were sold off creating excess supply.
The Descent
But OPEC overreached itself. Probably through a combination of greed and ignorance, Arabian producers convinced themselves that oil prices should continue to rise. Saudi Arabia started to cut its oil output to keep the price high. They succeeded-for a while and at great cost. By March 1983, it should have been evident to all that the high price was causing a real decline in the demand for oil for by consumers around the world. OPEC reduced its price to $29, and Saudi Arabia reduced its oil output even further.
To no avail. The consumers had won the battle, by practicing conservation. The high price of oil encouraged not only greater efficiency in oil use, especially in cars, but also fuel switching. Coal, gas, and especially nuclear energy, were
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