The Organization of Petroleum Exporting Countries today cut the price of most types of oil sold by its members and, in effect, agreed that market forces of supply and demand will determine the future course of oil prices.
The majority decision, marking only the second time in its 25-year history that OPEC has reduced prices, left the beleaguered cartel in disarray. Libya, Iran and Algeria renounced the accord, while Gabon abstained. Those countries had opposed any price cuts.
Such dissension is now afflicting the once powerful organization as its income and production have dwindled in recent years in a world awash in oil.
"The meeting is not a failure, but I must admit I cannot call it a success," said Indonesia's energy minister, Subroto, who served as chairman of the three-day emergency session.
Analysts of the oil market said consumers, already benefiting from price cuts by non-members of OPEC, could not expect an immediate fall in prices for gasoline and other petroleum products. But they said OPEC's apparent decision not to continue its efforts to prop up the price of oil could cause prices to drift down in the months and years ahead.
Facing intense pressure to bring OPEC prices in line with market realities, nine OPEC members today surrendered their previous insistence on defending at all costs the $29-per-barrel benchmark price set for Arabian light crude in March 1983, when OPEC's first price cut of $5 was established.
"The fundamentals of the market will determine the price of oil from now on," Subroto said.
The OPEC majority abolished the benchmark price and approved a scheme to trim prices for most light oils while keeping untouched the cost of heavy crude sold mostly by Saudi Arabia. This formula narrowed the gap between OPEC oil prices from $4 to $2.40 and amounted to a "weighted average" decline of 29 cents, according to Saudi Arabia's Petroleum Minister Ahmed Zaki Yamani.
"I think this decision will give a strong and positive signal to the market," Yamani said at a news conference after the meeting.
Oil industry analysts predicted that any success will prove short-lived. They noted that two-thirds of the world's oil supplies are now churned out by non-OPEC producers and that it has become increasingly difficult for the cartel's 13 members to maintain a disciplined, united front.
Iran, which said it will defy the accord, is expected to continue to offer special discounts, offering oil as low as $23 a barrel according to some traders. A senior Iranian official said his country needs to sell as much as oil as possible now to bolster its war-torn economy.
Nigeria, which agreed to raise the price of its oil from $28 to $28.65, aroused some skepticism among traders who said the country will not be able to attract buyers at that price because of stiff competition from Britain and Norway.
Oil industry executives said it appeared likely that whatever promises were made, Nigeria would soon discount prices to lure customers and quietly try to boost output to expand income.
Tamunoemi David-West, Nigeria's petroleum minister, left today saying he was happy with the pricing agreement. But he noted: "I've got two feet in OPEC and two eyes on the North Sea."
Even though OPEC hopes to inhibit violations by auditing price and production levels among members, industry analysts said that the lack of punitive measures will make it impossible to prevent other OPEC members, besides Iran and Nigeria, from cheating.
Today's break with the cartel's support of the $29 oil marker price came as the consequence of important changes in market conditions in the past five years.
The expanding capacity of the Soviet Union, Britain, Mexico and other non-OPEC producers has broken OPEC's dominance of oil supplies and thus effectively ended its ability to act as a true cartel.
Mexico, the single largest foreign supplier of oil to the United States, has tied its price to Arabian light crude, and analysts told The Associated Press they expected a $1-a-barrel cut in its Isthmus light oil. Mexico's oil minister, Francisco Labastida Ochoa, said his country would consider OPEC's action and expected to announce a decision next week.
British National Oil Co., a government-owned company that has been putting off pricing decisions since December while awaiting OPEC's action, said, "We have noted the outcome and we will be reviewing our position," AP reported.
OPEC's facade as a united force in the market has crumbled as many of the poorer, more populous members find it impossible or impractical because of debt burdens to roll back production enough to support high prices.
OPEC has curtailed its production from 31 million barrels a day five years ago to its self-imposed ceiling of 16 million barrels a day in an unsuccessful bid to shore up prices.
Saudi Arabia has slashed output in that time from nearly 10 million barrels a day to 3.4 million barrels. In so doing, Saudi Arabia has reduced its ability to turn around a depressed oil market on its own, as it once could do.
Among consumers, the strong dollar has further discouraged consumption among European and developing countries, who now pay more for oil in terms of their own currencies than they did when OPEC charged $34 a barrel two years ago.
Oil companies have also relaxed and now operate on much lower inventories because they are confident that the prevailing surplus in world oil will persist for some time.
Yamani suggested today that he thought the oil firms were playing a dangerous game by running stocks so low in anticipation of cheaper oil in the future.
"They think they can live without a crisis because they think there is plenty of oil around," he said. "Well, I hope they are not disappointed because if it happens it will be rather serious."
The Saudi oil minister also expressed the hope that major oil producers outside OPEC will not try to undercut prices in the next few months.
If world demand increases, Yamani said, only OPEC members will be in a position to profit from increased sales. He predicted that OPEC would be able to raise its production ceiling by the summer.
But Yamani's forecast was contradicted by oil industry traders and executives here, who said that if anything, demand for oil will drop by the summer months unless a surprising rebound takes place in economies around the world, not just in the United States.