News OPEC sees better days beyond 2000, but...

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A better decade could well be awaiting the Organization of Petroleum Exporting Countries beyond 2000.

But the challenge for the group in 1996 will be to keep its nerve, says OPEC Bulletin, Vienna.

The January issue of OPEC's official publication, released early this month, says the group's fortunes appear good in the next century. That outlook stems from the present unequal ratio of reserves to production between OPEC members and oil producing countries outside the group.

This year, however, it notes that some may try to place the blame for overproduction of world oil on OPEC quota busting.

"But the truth is that OPEC's policy of voluntary restraint is deliberately thwarted by those non-OPEC countries intent on producing at full capacity," OPEC Bulletin says. This is "the very antithesis of cooperation in shouldering the burden of market stability."

If the lack of sensible production restraint continues, it may be a question of who proves best at keeping their nerve.

Oil prices

OPEC Bulletin points out that the turn of the year brings a fresh start, a new outlook. Optimism would not seem to be entirely misplaced, for by various measures 1995 turned out better than many had forecast.

Global economic growth was modest overall, but there were pockets of real promise. Partly as a result, world oil markets were more buoyant than in 1994, and the average price of OPEC's reference basket of crudes rose to about $16.80/bbl from $15.53 in 1994.

OPEC Bulletin said, "Not only was this a real increase, in the economists' sense that it more than kept pace with inflation in most countries, but it could also be described as a modestly useful rise."

That's because the 8% increase is not likely to damage oil's competitiveness against other energy sources, "one of the key considerations of the 1990s."

Separately, OPEC News Agency, also of Vienna, last week reported the price of the group's basket of seven reference crudes slumped to $16.98/bbl from $17.76 in the fourth week of January. The price of the basket last month averaged $18.06/bbl, up from $17.76 last December and $16.49 last November.

OPEC Bulletin says the group's experience shows a steep, sudden rise in oil prices is as bad as a fall because it stimulates energy policies and technologies that lead to an eventual switching away from oil.

Based on price performance, OPEC Bulletin calls 1995 an endorsement of OPEC's long term policy of supporting a stable oil market in which prices "float upward on a gently rising tide of growth."

But it declares that crude prices in real terms have not attained the level required to provide adequate funds for productive capacity growth.

Oil's market share

The higher average oil price of 1995 does not threaten oil's share of world energy mix, the OPEC publication says.

"The main pressure, however, still comes from the steady attack on oil's environmental credentials. Moreover, misuse of the environmental argument to cover 'green' taxes, which in reality were aimed at reducing public sector deficits, got noticeably worse in 1995."

Although one key proposal, the European Commission's plan for a carbon/energy tax, made little real headway, the picture was "disappointing" in some consuming countries.

Apart from the U.S., fuel taxes have been raised across the board in members of the Organisation for Economic Cooperation and Development, "the green argument being readily deployed to justify further rises in what are historically high tax rates."

Tough measures like California's program of zero-pollution (electrically powered) vehicles are being recognized for what they are: unachievable in the present time span as they run up against technological barriers such as battery design.

This "new realism" has a double benefit, the bulletin says. It discourages the spread of copycat legislation and offers fresh encouragement to refiners to get on with the capital intensive work of producing cleaner burning fuels.

OPEC members plan this year to press for some of the green tax revenues raised in consuming countries to be dedicated to reducing greenhouse gases.