At long last, the Organization of Petroleum Exporting Countries, in bitter disarray without a price agreement at its meeting last week in Geneva, has had to confess what many observers here were reluctant to believe:
There no longer is an oil "weapon" with which to club the Western consuming nations, because oil is no longer a scarce commodity.
Nigeria's price cut of $4 a barrel to $36 is merely the first of a series of price reductions and discounts over the next few weeks that will confirm the reality of the new situation.
In the past year and a half, the industrial world, stung by high prices, has reduced its use of oil by more than 5 million barrels a day from the early 1979 peak while moving expeditiously into other forms of energy.
Even massive production cuts -- the OPEC nations (except for the Saudis) slashed output 3.5 million barrels a day just between January and June of this year -- haven't been able to stem the resultant price decline.
The slide in prices so far has been dramatic, not totally revealed in the official lists. Spot prices for oil broke in June and July from $39.25 a barrel to less than $32 a barrel. Before anyone weeps for OPEC, however, it should be remembered that even $30 a barrel is close to triple the price paid in December 1978, and that today's dollar is worth as much as 30 percent more than it bought in some local currencies at the end of 1978.
By the end of 1982, according to an analysis by Townsend-Greenspan Co. of New York, OPEC is likely to be supplying less than 26 million barrels a day to its customers in the world, well below the 30 to 31 million barrels a day it was selling in the late 1970s and even farther below its capacity of 34 million barrels a day.
That could be a conservative appraisal. The big drop in consumption so far -- 14 percent in the industrialized world since the 1979 peak -- is mostly a delayed response to the 1973-74 oil price shock, not to the 1979-80 price rise. There could well be a further sharp decline in petroleum consumption in the next few years as the second wave of price increases works its way through the system.
That's why OPEC can no longer call the shots. Youssef Ibrahim, OPEC affairs reporter for The Wall Street Journal, wrote: " . . . The producers couldn't agree on how far to retreat, and upon whom much of the humiliation of a price rollback must be heaped."
In the past year, Saudi Arabia followed a bold and clever strategy. The world's biggest producer, Saudi Arabia boosted its output (and its revenues) in an effort to force price moderation on the rest of the cartel, which has been soaking its customers as much as $41 a barrel.
The other cartel members, having failed to get the Saudis to slash production and raise the price toward their higher levels, will now be forced to cut prices. Nigeria hopes that the price cut announced last week will help it recover at least part of its lost market: Exports had slumped from 1.5 million barrels a day a year ago to a slim 500,000 barrels a day recently. Libya and Algeria, squeezed by the Nigerian action, are likely to be next.
"The Saudis could barely hide their glee as the others twisted and turned to reach an accommodation with them," Ibrahim wrote after the Geneva meeting.
Oil Minister Ahmed Zaki Yamani told reporters what he had refused to confide to fellow OPEC members at the session -- Saudi Arabia would trim production modestly, but not enough to soak up the surplus. Yamani made no bones of the fact that taking some oil off the market is meant only to keep the $32 Saudi price intact. He freely admitted that economics dictates a price no higher than $28 a barrel.
The Saudis, as always, are pursuing their self-interest. But that self-interest has not always coincided with the United States' best interest, despite Yamani's public relations claim that the Saudis "manufactured" the oil glut to help their "special" friend, the good old U.S.A.
Yamani's hype may have fooled a few newspapers and editors for a while and softened some opponents of the AWACS airplane deal. But recent reporting and commentary indicate that the writers seem, finally, to understand the root element of the Saudi game. All the Saudis have been trying to do is force the other OPEC nations to cut their prices to the level the Saudis think will best sustain the salability of the huge Saudi oil reserves.
With OPEC, as a cartel, numbed by internal politicking, now is the time for the Western consuming nations to press their advantage. It is an ideal moment to schedule filling the Strategic Petroleum Reserve to capacity, and the recently announced deal with Mexico for 110 million barrels negotiated by the Reagan administration is a sound step in that direction.
Just as important, as a high State Department official says privately, "No phony gratitude should be expressed to the Saudis."
Instead, we ought actively to seek to diminish our dependence on them and on all other Middle East oil exporters. The oil-importing nations can move into the catbird seat. They mustn't be any more bashful about taking charge in an era of oil surplus than OPEC was when there was a shortage.