Scarcely a dozen years ago, in the short span of two months, the Organization of Petroleum Exporting Countries arrogantly assaulted the industrialized world by quadrupling oil prices, to $11.65 per bbl. At a four-day meeting in Geneva last week, OPEC showed only a shadow of its former power. With the world awash in oil and consumption down, the once all-powerful OPEC cartel has an ever diminishing impact on global markets.
By most estimates, 80% of all oil produced today sells for as much as $2 per bbl. below OPEC's prices, the highest of which is $28 per bbl. for top-quality light crude. Moreover, the cartel now produces only 43% of the West's oil, vs. 63% in 1979. The rest is pumped by such countries as Mexico, the U.S. and Britain, none of which belongs to OPEC. Three weeks ago Mexico dropped its price to $3 per bbl. below OPEC levels.
At last week's meeting, amid acrimonious charges that some members were cheating the cartel by selling at cut-rate prices, OPEC's 13 members[*] tried desperately to halt the price slide. "Market stability is at the crossroads," admitted Subroto, Indonesia's Oil Minister and the current president of OPEC, at the start of the session. Yet the most that the ministers could agree on was minor adjustments like lowering OPEC's price for the heaviest grade of Saudi crude by a token 50¢ per bbl., to $26.
It was a feeble attempt to boost sagging sales, and no oil expert thought it would work. Said an Indonesian oil trader: "It's a charade. Official prices are there to laugh at." Even the way the decision was made showed the extent of discord inside OPEC. Most cartel decisions have been by consensus, with the member nations at least presenting the appearance of a united front. No such accord could be reached last week. Instead, OPEC was forced to abide by majority rule, with Libya, Iran and Algeria going on record as opposed to the price cut. Nonetheless OPEC tried to look happy with what it had done. Was Saudi Arabian Oil Minister Ahmed Zaki Yamani pleased? "Yes, I am," he said. But he was uncharacteristically quiet, and he canceled his customary postsession news conference.
This was the second meeting of OPEC ministers in a month, the sixth in a year. Yet the sessions have done little to halt the tumble of oil prices on world markets. Constantine Fliakos, chief international oil analyst with Merrill Lynch in New York, said OPEC's "pretense to try to reassert control over the oil market is a joke." The Geneva meeting, he said, "is a display of impotence."
Further evidence of that was the skirting of important issues. There was, for example, plenty of talk about how to stop members from undercutting official prices through barter deals and other so-called processing arrangements, but no real action. Last year OPEC agreed to hire the Dutch auditing firm of Klijveld Kraayenhof to police prices and quotas. As of last week several members, Iran among them, were still refusing to give the accountants the information needed to determine who was cheating.