Hassled Cartel

OPEC heads for a showdown

With world oil markets already in shambles, ministers from the 13-nation Organization of Petroleum Exporting Countries are planning to gather this weekend in Vienna to make a desperate gamble. They will try to shore up the price of crude on world markets by agreeing to set a production ceiling of 18.5 million bbl. per day, down from 19.2 million bbl. per day currently, and to parcel out the resulting cuts. That is something that the fiercely nationalistic members of the organization have never before managed to achieve. Many Western analysts, emboldened by strife-torn OPEC's recent setbacks, are predicting that the effort will fail, putting further pressure on prices, which have already slipped by about 3.6% in the past year, to an average of $33.55 per bbl. Others, recalling OPEC'sS clout during the 1970s, are more wary. Says Standard Oil of Indiana's chief economist, Theodore Eck: "They wouldn't have agreed to a special meeting if they weren't confident of achieving some results."

Over the years, OPEC ministers have had no trouble raising prices to sky-high levels. Now, however, the world is awash with excess crude--2 million to 3 million bbl. of unused oil per day--and the production cuts necessary to firm up the market are more than some members have so far seemed willing to bear.

Several cartel members are short of cash and badly need to sell every barrel of crude they can pump. One such country is Nigeria, which is burdened with a population of 80 million and a superambitious agricultural development program. In a desperate move to boost sales, the government last week threatened to slash a full $5 per bbl. off its officially quoted $36.50 price, in order to compete with non-OPEC oil from the North Sea.

Saudi Arabia, which produces 40% of OPEC's oil, holds the key to any agreement that would keep prices from plunging still further. The Saudis could dry up the supply glut singlehanded by slicing their output, now at about 7.5 million bbl. per day, to 5 million bbl. But the House of Saud cannot go below 6.2 million bbl. per day without dipping into capital reserves to finance a variety of ambitious construction and industrialization plans. The Saudis are also reluctant to step out on a limb within OPEC. Says Lawrence Goldstein, research director of the Petroleum Industry Research Foundation: "If the Saudis cut, they have to have some indication that the rest of the organization will not simply make up the reduction in volume and take away the market share."

A member like Libya, which needs cash to underwrite the grandiose political ambitions of Colonel Muammar Gaddafi, could be tempted to do just that. Libya's production has been about 20% below its

December output and may fall further as a result of the Reagan Administration's formal halt to Libyan imports last week.

On balance, some oilmen think that the best possible outcome of the Vienna meeting would be no agreement at all. Instead of the familiar spectacle of cartel members announcing yet another price increase, OPEC's quarrelsome ministers may simply head home in scowling silence, sending the price of oil down even more.

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