"OPEC too slow" in responding to changes in demand for crude (OGJ, Apr. 3, 2000, p. 19)? One reason crude has fallen $11 in 4 weeks to Apr. 10's $23.85 is that OPEC responded rapidly, having overproduced above its production cut agreement, which enabled members to quickly dump it on eager markets. That's one-half a 13 month price gain lost in 4 weeks!
OPEC "ellipseis in the driver's seat on oil prices" (Watching Government, OGJ, Apr. 3, 2000, p. 33). If true, OPEC should have its driver's license revoked. US Secretary of Energy Bill Richardson, the oil industry, and OPEC all want stability in crude and gasoline prices, but pursue tactics and hold perceptions that perpetuate price volatility. Congress and President Clinton will do nothing to help the US oil industry, except lie to it and hustle campaign cash from it.
OPEC raises production from 22.9 million b/d under the 1998 cut agreement to 24.7 million b/d? Read the asterisk: "Excludes Iraq." In March 1998, Iraq was about to get a UN-approved boost in its oil-for-food sales to $2 billion/6 months from half that, but was getting 1 million b/d to markets, about 50% non-UN approved. In 2000, it gets out closer to 3 million b/d, one-third non-approved. That no one counts these barrels does not mean they don't have an impact on prices or supply. You are witnessing it's beginning today.
But OPEC itself is in a battle that it prefers the world ignore: the battle for economic valuation of oil between a cartel-set crude price and the value of crude retroactively set in retail consumer markets when sold as products. OPEC wants the world to see the crude-price cartel, yet its dominant producers have shifted to using end-product valuations as their benchmark of stable pricing.
When Saudi Arabia and Texaco formed their joint-marketing venture in the US in 1988, oil producers had 0% of the US gasoline market. In 1999, they held 16%. In 2010, they will control 50%, and will get it the way they got the 16%: low pump prices that shift gasoline share from high-price sellers.
Those in OPEC who don't market gasoline want a cartel-set crude price-if they cannot get on the new economic train. Washington, the oil industry, and blowhard politicians act to help the crude-cartel prices even as the new economic valuation of oil expands its impact. This is backing the flat-earth theory in the 16th (post-Columbus) century.
It will fail, but the price and supply volatility the flat-earthers' efforts will continue to bring will make 1986-2000 seem a period of stability. But the battle for economic dominance roiling OPEC will continue for 3 decades.
Norman P. Higby
Menlo Park, Calif.
