Winter is already drawing to a close in the world's oil markets. In three or four weeks, producers will feel the approach of spring, when temperatures rise and the demand for fuel drops. That is the background to the current quarrels now occupying OPEC's meetings in Geneva.
This winter has been a great disappointment to OPEC. It had been counting on cold weather and rapid industrial expansion to lift sales and help it to maintain its prices. That hasn't happened, for three reasons. Conservation, throughout the industrial world, is steadily reducing the amounts of energy used to produce each dollar's worth of goods. Unusually warm weather in the eastern United States, the world's biggest market for heating oil, has dampened demand. And some of the oil companies have been drawing down their inventories.
It's the reverse of the process that helped OPEC enormously in driving up the price in 1979-81. When people expect a shortage to drive prices up, they grab for excessive inventory to make money on it -- and that aggravates the shortage. When people think that there's enough oil to keep prices flat, or even to make them fall, they run down inventories to avoid losing money on them -- and that aggravates the oversupply.
The annual oil cycle is now moving through the period of peak demand without soaking up that oversupply, and the producers can only expect falling sales for the next half-year. That puts a special pressure on OPEC because all the exporting countries outside OPEC -- the Soviet Union, Britain and Mexico are the most important -- continue to pump their oil at rates very close to full capacity. As demand drops, OPEC has been cutting back its own production in a desperate attempt to keep prices from falling further. But the OPEC system of producfectively. There's been too much cheating and chiseling by member countries that want the extra revenue. Now OPEC is apparently going to try to set up a tighter system of monitoring. Will it work? Probably not.
For the United States and the other oil-importing countries, a lower price is good for the economy if -- this condition is crucial -- it is a stable lower price. A sudden drop in prices is dangerous if it only sets off another surge in consumption that shortly snaps the market tight and sends prices bouncing higher than ever. That's what happened in 1979.
The trick is to keep pushing for conservation while the price falls. There's a simple solution. A gasoline tax of, say, 25 cents a gallon would discourage waste. But the total cost of gasoline, adjusted for inflation and including the tax, would still be well below the 1981 peak. Since a penny per gallon raises $1 billion a year, it would generate $25 billion next year -- a substantial contribution to solving Mr. Reagan's budget embarrassment. A good idea? You bet it is.