OPEC is more vulnerable than ever before. Yet, it is too early to write the epitaph of this great oil cartel. For we must understand that Saudi Arabia had been overproducing crude oil at 10.2 m/b/d throughout 1980 and most of 1981 in order to force other members of OPEC to cut their prices, which ranged from $35.50 to $41 a barrel. As Saudi Arabia slashes its production steeply and Iran is prevented from selling an increasing amount of crudes to obtain larger revenues, much of the glut in the world oil market will dry up.
As seen in Figure 1.2, a small imbalance between world oil supply and demand can have a dramatic impact on stock levels. Other things being equal, an excess or shortfall of only 2 percent of supplies, lasting six months, could produce almost a 40-percent buildup or drawdown of the 500 million barrels of above-historic usable commercial inventories available in early 1981. 11 Also, when the Western economies finally emerge from the recession, demand for oil will increase when their economies surge ahead to their long-run growth paths. Similarly, the demand for oil from the Third World countries will also be increasing with the prosperity of the industrialized nations. Once this happens, the smiling faces of OPEC oil ministers at their semiannual gatherings will once again be splashed in world's newspapers, as they have so many times before.