OIL PRICES, as you have probably noticed, are moving again. A couple of weeks ago Mexico raised its prices to the second highest in the world. The highest was Canada's. You will observe that neither Mexico nor Canada belongs to OPEC.But they both are close the the United States, and it is American demand that drives the oil markets. After Mexico acted, Libya leapfrogged to a new world record. Then Iran raised its prices and, a few days ago, its rival, Iraq, followed.
The spot price of oil keeps telling the sellers that their prices are still too low. The spot price is the broker's price for the odd lots -- a shipload here, a bargeful there. Most oil is traded at contract prices, for so many barrels a day over a period. Libya's staggering new contract price is $26 a barrel. But the spot price is dancing around $40 -- for oil that might have cost $14 a year ago. That high spot price is a goad to exporting governments. Why let the brokers and middlemen take those enormous profits?
The spot price is kept high by nervous buyers who keep reading the news from Iran and wondering whether supplies will flow smoothly through the winter. Most think not. Refiners keep buying and passing the costs on to their customers, who being equally apprehensive, are not likely to balk at the price.
The seven major industrial countries agreed, at the Tokyo meeting last June, to cooperate in controlling panic buying to bring that inflammatory spot price down. You can see how much success they've had. But the principle is the right one -- to curb demand in the industrial countries.
Americans have done well in conserving oil over the past half-year. Partly it's voluntary cooperation, partly the effect of higher prices. The country currently seems to be using about 6 percent less oil -- that's a million barrels less every day -- than a year ago. But oil prices keeping rising.
One reason is that, while consumption is down, imports are up a little. Americans have been building up stocks for the coming winter. But there's another, and more ominous, reason. Some of the exporting countries have been cutting back production. They saw last spring that a small worldwide shortage, perhaps 3 or 4 percent, could raise prices 50 percent.
That provided a strong incentive to keep supplies tight. All of the exporting countries are griipped by the knowledge that their oil reserves will last only a matter of decades at best. They are determined to sell that oil as slowly and as dearly as they can.
The only rational response for Americans, and the whole industrial world, is to keep cutting imports. In this country, a rough agreement seems at last to be taking shape. One useful analysis of the present choices is the book "Energy: The Next Twenty Years," which was published last month by Resources for the Future, a research organization here, with support from the Ford Foundation. It concludes that rising energy costs need not affect Americans' welfare severely -- but it is dangerous to think that government can protect the public from those higher costs. This careful study also argues that public policy can soften the impacts of price jolts and supply disruptions -- but "serious shocks and surprises are certain to occur."