Ministers from the 13-member Organization of Petroleum Exporting Countries met in Geneva the other week to try to hike the price of crude oil by restricting production. But the pact announced Feb. 15 is unlikely to succeed. Given the glut of oil on the international market these days, the OPEC ministers appeared to be latter-day King Canutes, trying to command the ocean waves to recede.
The world is awash in oil, even though two of the major producers are currently negligible contributors: Iraqi oil is kept off the world market by the United Nations boycott, and Kuwaiti production has not yet recovered from the destruction ordered by Saddam Hussein. But Saudi Arabia has played a noteworthy role by pumping with considerable zest in order to ease any disruptions associated with the gulf war.Meanwhile, the world's thirst for oil has been moderated by the recession, which, many Americans will be surprised to learn, has not been limited to the United States but has been affecting most industrialized nations - even Japan.
In any event, the result of plentiful supplies and lessened demand has been inevitable: lower prices. Which is terrific for consumers but not so great for producers, especially those - such as Algeria, Ecuador and Venezuela - facing social unrest because of the damaging impact of low oil prices on their economic health in general, and their government finances in particular.
That helps explain why Venezuela, ordinarily allied with Saudi Arabia as a moderate among OPEC members, arrived at Geneva calling for the sort of deep cuts in production that might result in significant hikes in the price of oil. Most OPEC members agreed. But Saudi Arabia - the country, let it be recalled, that was scheduled to follow Kuwait as a target for Saddam's policy of aggression in the oil-rich gulf - used its leverage as dominant oil producer to force a more moderate stance.
As a result, the ministers agreed to reduce OPEC's total daily oil production from the currently estimated 24.2 million barrels down to 22.9 million. This cutback is relatively modest. And it will not come close to driving crude oil prices up toward the target of $21 a barrel, which most OPEC members consider essential for their financial health. In fact, some observers think the newly lowered goal for OPEC production may not even be able to maintain current price levels - in the $17 range.
The ministers agreed to reassemble in Vienna on April 24 in order to assess the results of the Feb. 15 pact. Of course, anything can happen between now and then, but what is most likely is a continuation of the current situation: There will be more than enough supplies in relation to demand, thereby keeping prices relatively low.