Rip-Off Time Once Again

Here comes OPEC, ahead of schedule

Now that those mile-long gasoline lines are evaporating and Government officials are cautiously speculating that there may be enough heating oil to go around next winter, is the petro-squeeze of 1979 coming to an end? Not if OPEC can help it. To keep the market squeaky tight and prices high, a growing number of oil-producing states are either cutting back on exports or threatening to do so.

They are also demanding more money for their already overpriced product.

A main reason is the renewed weakness of the dollar. At the cartel's June meeting, which lifted average crude costs by 42%, to about $20 per bbl., even so-called moderate members warned that a 5% drop in the dollar's value could easily provoke another round of increases. In the past month the greenback has slumped by almost that much against strong foreign currencies, and several OPEC states are calling for an emergency meeting on prices as early as September in Vienna--well ahead of the next officially scheduled conference in December.

Some members are beginning to take price-boosting actions on their own. Last week Nigeria announced plans for a 10% cutback in the production of its much prized low-sulfur crude, Algeria threatened an even larger 20% cut of its own, and Kuwait indicated that it intended to reduce output by as much as 25% early next year.

The total of all the cutbacks would reach some 1 million bbl. daily. That is precisely the amount by which Saudi Arabia last month boosted its own production in an effort to stabilize prices. The reductions would give a renewed upward push to prices worldwide, notably on the all-important spot market. That is a loose telephone network of traders who buy and sell the small amounts of crude that are not locked up under long-term contracts.

Since the transactions reflect the real price that buyers are willing to pay, the deals are closely watched by OPEC members for signs that the cartel's long-term prices could be increased. Spot prices have eased from a peak of $42 per bbl. in late May to about $30 to $32 per bbl., but fears of production cuts have stopped the slide.

The Nigerian and Algerian governments argue that the cuts are for purely technical reasons, to prevent the damage to their oilfields that would result if they continued indefinitely pumping out crude at recent rapid rates. Nigeria's claim may be partly justified, but Western oilmen charge that Algeria's alleged cutback is nothing more than a sleight of hand. Algeria is secretly selling the oil for top dollar to spot-market buyers. Reports a high oil company executive: "What appears to be a cutback is really just a diversion to the spot market. This is more than a suspicion; we are sure of it."

Oilmen also accuse Nigeria of unabashed price gouging. Though cartel members agreed in June not to tack surcharges on top of the maximum $23.50 per bbl. for their crude, Nigeria for weeks has been demanding a $5 per bbl. premium on as much as half of its exports.

Some companies, including Spain's state-owned Hispanoil, have refused to meet the extortionate price, but others may cave in soon if supplies grow much tighter. Late last month tiny Qatar had no difficulty auctioning off 3.2 million bbl. of crude for an excessive $34.30 per bbl. to Japanese importers as well as a Lebanese company, Gatoil International, for delivery to its Swiss subsidiary.

The spot market will probably get a further upward nudge from a separate Nigerian action, the abrupt nationalization last week of British Petroleum's exploration, marketing and production operations. The Lagos government declared that it was punishing BP for supplying oil to South Africa in violation of a Nigerian boycott, a charge that the company denies. The takeover deprives BP of an estimated 300,000 bbl. per day, but the Nigerian government is offering to sell the crude to any taker on the spot market, presumably including BP.

About the only good that can come from the cartel's new squeeze would be to help keep the U.S. from dozing off in the face of the worsening petro-peril.

Ironically, OPEC's greed may yet inspire a determined conservation and development strategy to break free of dependence on imported oil.

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