ALL THROUGH the first half of this year, both the buyers and the sellers of oil have been telling themselves that the market would surely tighten by late summer. The big industrial countries would have to start stockpiling for the winter. Those rising sales would help OPEC enforce its price system, and strengthen it after a year in which its authority has been visibly eroded.
But it didn't happen. Conservation of oil, here in the United States and throughout the world, has been much more effective than most people expected. Industrial use is being held down by the prolonged recession. Inventories are down. The reasons are all perfectly clear in retrospect. But the effect is greater than almost anyone foresaw.
The heaviest impact falls on OPEC. The oil exporting countries outside OPEC, like Mexico, have continued to produce briskly. In contrast, OPEC, dominated by Saudi Arabia, is struggling to maintain its prices. All of OPEC's members are now producing far less than they would like. Saudi production is now down around 5.5 million barrels a day -- hardly more than half the rate that it reached last summer. Some of the OPEC governments -- Iran and Libya most aggressively, occasionally Nigeria and Venezuela as well -- are now selling their oil below the OPEC prices in an effort to keep their revenues up.
Economic tensions in OPEC unfortunately exacerbate other tensions throughout the Middle East. Even before the oil market began to shrink, the internal divisions within OPEC lay chiefly between the conservative Arab states of the Persian Gulf on one side, and the Iranians and the North African radicals on the other. Those divisions have become wider than ever.
For the United States and the other industrial countries, it's a prospect of continuing instability in oil prices and supplies -- precisely the opposite of the predictability that the Saudis have been trying to establish. The major reason is the war between Iran and Iraq. If there's peace, or if either country manages to raise exports substantially without peace, oil prices will decline further, and OPEC might well fall apart. If the war were to spread, it would threaten a severe shortage and sharply higher prices -- for those countries still able to move their oil. Neither possibility is very inviting for the Saudis. As for Americans, budget deficit or not, they need to keep pouring oil into their strategic petroleum reserve. It's now the equivalent of about two months' imports. A three months' supply would be a little more comforting.