Conditions of the present oil market don't overturn the fundamentals of economics and politics.
Assumptions to the contrary seem to be at work in the attention focused lately on production restraint by the Organization of Petroleum Exporting Countries. The exporters' group receives more credit than it deserves for production discipline.
To be sure, the coordinated restraint OPEC members exercised to rescue a wrecked market in 1999 was unprecedented in both volume and duration.
But quota compliance was seldom 100%. Inevitably, it wavers now.
The US Energy Information Administration estimates overproduction against the OPEC quota in effect during Feb. 1-Apr. 1, 2001, at 400,000 b/d.
And it assumes in its forecasts that violations of the reduced quota that took effect Apr. 1 will average almost 1 million b/d.
EIA expects the group later this year to repeat the tactic to which it has resorted before of raising quotas to validate production realities.
During the past 3 years, it says, OPEC production has ranged between 300,000 b/d and 1 million b/d.
"Quota discipline has been best during periods of high demand for OPEC crude oil, such as end-2000, when quotas were set so high that they met or exceeded the production capacity of several OPEC members," says an Apr. 6 EIA report.
This year's two quota cuts, totaling 2.5 million b/d, require increased sacrifice by individual members. When forced to sacrifice anything, however, rationally behaving producers place group cohesion on the altar well before domestic revenues.
In fact, it was a revenue crisis that inspired the determined, two-step quota cuts of 1998-99. Plummeting oil prices had pulled OPEC revenues in 1998 to their lowest level since before the Arab oil embargo of 1973.
Especially in the Persian Gulf member-states, shrunken revenues breed political instability. The exporters had no choice but to reduce exports in favor of price.
A near tripling of crude price since then has improved things for the producers, of course.
EIA estimates that, in constant dollars indexed to 2000, OPEC revenues last year rebounded to $224.7 trillion from $105 trillion in 1998. In the peak year, 1980, they totaled $573.1 trillion.
This year, EIA predicts OPEC revenues will slip to $212.2 trillion.
Pressure will be strong on members with spare capacity to use it in defiance of their quotas. Most of them still have large debts. And growing populations are intensifying internal pressures.
EIA points out that oil revenues per person in OPEC countries will average $416 this year, less than one-fourth the level of 1980. With development, government spending has soared during that period, much of it on subsidized services that are popular but economically unsustainable.
Furthermore, price conservatism in individual budgets for 2001 creates room to cheat. Assumptions about crude price, according to EIA estimates, remain below current levels: $22/bbl in Nigeria; $20-21/bbl in Saudi Arabia; $20/bbl in Indonesia, Iran, and Venezuela; and $19/bbl in Algeria.
OPEC production management thus remains a strong factor in the oil market. But it is an imprecise tool, in part because the temptation on individual members to bust quotas when prices rise remains as strong as ever.