Newspaper article THE JOURNAL RECORD

Bearing with the Oil Plunge / OPEC Didn't Lose Market - It Overracted, Costing Itself and Other Producers Billions of Dollars

Newspaper article THE JOURNAL RECORD

Bearing with the Oil Plunge / OPEC Didn't Lose Market - It Overracted, Costing Itself and Other Producers Billions of Dollars

Article excerpt

NEW YORK - For years, we had anxieties that the Organization of Petroleum Exporting Countries would keep pushing prices up through the roof, extorting hundreds of billions of dollars from oil consumers in the industrial world and less developed countries.

Now, suddenly, these anxieties have given way to fears that OPEC has lost control of the market, or that OPEC's Arab members, led by Saudi Arabia, mean to break the power of non-OPEC producers by driving oil prices down to ruinous levels.

The new fears of an oil price war and price collapse look as exaggerated as the old fears of endless petro-inflation. Certainly, such anxieties were not based merely on illusions.

However, a more realistic synthesis of the two hyper-emotional events would be that the first yielded the second:

- In a highly unstable world oil market, with panicky consumers vulnerable to political shocks and hence at least temporary monopoly exploitation, OPEC overreached itself in the 1970s and set the stage for falling oil prices in the 1980s.

Prof. Maurice Adelman of the Massachusetts Institute of Technology calculates that oil intensity - the amount consumed per unit of gross national product - has fallen in the industrial countries byone-third since 1973. With gains from energy savings still to be realized, the decline in oil intensity is likely to continue, though at a slower rate.

OPEC's overreaching on prices also increased oil output and stepped up competition from other producers.

Oil supplies from non-OPEC sources outside the Communist world climbed from 17.4 million barrels a day in 1973 to 2.2 million barrels a day last August. Meanwhile, OPEC's output shrank from 31.3 million barrels a day in 1973 to 15.7 million barrels a day last August.

As cartel master, Saudi Arabia bore the brunt of cuts in supply to check price declines.

- Last fall, Saudi Arabia decided to take a tougher line to discipline other OPEC producers and to force non-OPEC producers back into line.

The output of the Arab members of OPEC jumped from 9.9 million barrels a day last August to 12.2 million barrels a day in October, with Saudi Arabia accounting for virtually the entire increase of 2.3 million barrels a day. The Saudis more than doubled their production, to 4.3 million barrels a day.

Total oil supplies produced by non-Communist countries have increased from last August's 41.9 million barrels a day to more than 45 million barrels a day, according to MIT's Energy Laboratory.

That increase, plus continued restraint in oil consumption, touched off the sharp price drop. …

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