In the space of a few days, the debate over oil prices has shifted ground. One no longer hears it argued that the oil price decline is unhealthy for the world economy: Too many eminently respectable people have cheered the prospective decline as a guarantee for a smart economic recovery.
The only guessing game is: How far will oil prices fall? There remains a group of economists and bankers, we are reminded by Wall Street analyst Sam Nakagama, who "recoil" at the idea that "oil prices might plunge below the $26-$28 [per barrel] range. The prospect is simply too horrifying."
Others, like the outspoken secretary of Commerce, Malcolm Baldrige, view the prospect of oil well below $26 with great equanimity. "It can't go too low for me," Baldrige says.
But whether oil will actually drop to low levels, or be "contained" at around $26 to $28 depends on OPEC's ability to maintain a semblance of discipline over the cartel members. At a minimum, market experts say, OPEC must be able and willing not to let daily production rise over the present 14.5 million- to 15 million-barrel level. Remember, OPEC at the peak was producing and selling 31 million barrels a day.
Increasingly -- despite the familiar charade of OPEC ministerial summits -- it looks doubtful that the cartel can manipulate the supply so as to maintain artificially high prices. OF OPEC's present 15 million barrel production total, the five Arab exporters on the rim of the Persian Gulf are down to only about 7 million barrels a day.
The Arab bloc within OPEC can no longer dominate the cartel -- look how easily Nigeria broke ranks. And just as important, the non-OPEC producers, especially Britain, Norway and Mexico, have as much market clout today as OPEC.
In other words, the power that Saudi Arabia's Sheik Ahmed Zaki Yamani used to have as the leader of the Arab bloc within OPEC to dictate oil prices has virtually disappeared. To maintain a share of the market against the $30 to $30.50 price established by the North Sea producers and Nigeria, the Persian Gulf benchmark (a lesser quality oil) must go down at least to the $28 to $28.50 level.
This price could well be undercut by Iran. Now back up to 3 million barrels a day, the Iranians may be able to produce 5 million barrels a day within 18 months, according to an American businessmen, Harry Neustein, just back from Tehran. The Iranians, Neustein says, would like to get back into the U.S. market.
In a telephone interview, Neustein said that "if the English stick to their price, and I have no doubt that they will, then Persian Gulf crude is worth no more than $27 to $27.50." That would be about $7 under the present $34 Saudi light oil benchmark.
Neustein thinks the price will drop further because "there are no takers" for oil. That's a rhetorical exaggeration, to be sure, but suggests that the speed with which the United States -- the biggest oil consumer -- achieved a new efficiency in relation to energy has stunned the oil world.
The Saudis have been saying privately that they must produce 4 million to 4.5 million barrels a day to support their ambitious industrialization program. But at the moment, insiders say, they are down to 3.5 million barrels a day -- a far cry from the 10.5 million they were pumping and selling at the peak of their power.
Alan Greenspan, former economic adviser to President Ford, pointed out recently that the "out-of-pocket cost of producing oil, unlike other major commodities, is a relatively small fraction of the current market price."
What that means, he adds, is that unless all producers agree on radically reduced shares, production will "chronically" exceed consumption, and prices would have to fall at least to $20 a barrel before speculative inventory support begins to show up.
So the guess among many oil market experts is that prices are headed down, and headed down fast. Neustein believes that in the future, only 20 percent of oil will be sold on contract, "with the balance bought in what we call the second contract market, or the non-contract market. Who wants high-priced oil?"
With the shift to a buyers' market, it is an ideal time for the major nations, led by the United States, to slap a tax on oil. To be sure, there are pluses and minuses in such an action, deliberately styled to be punitive. On the negative side, it would deprive industry and consumers of some of the benefits of lower oil prices and, at the same time, provide a bonanza to domestic producers that would have to be recovered through a windfall profits tax. But it would force OPEC prices down even further.
Former undersecretary of State Myer Rashish, a Washington consultant, is proposing what seems to me to be an appealing refinement of the import tax idea: an exemption for secure Western Hemisphere producers, such as Mexico, Canada and Venezuela, if they undertake to increase their production. The president has the authority to impose a tax, under the Trade Expansion Act, and then to adjust the tax as economic or security conditions warrant.
It's been a long time since this country has been so fully in control of its oil future: it shouldn't waste time in pinning down the advantage.