OPEC, meeting today in Vienna, takes up once again its struggle to keep oil prices from falling. It would be better for the rest of the world if it fails -- and, fortunately, it is likely to fail. For the past couple of days the oil ministers have been anxiously trying to bat down the rumors that they have already agreed on a cut of perhaps $1.50 a barrel. Like the buyers of oil four years ago, the sellers are now being swept along by powerful forces over which they have little control.
It has always been much too easy to ascribe all the ups and downs of oil prices -- particularly the ups -- to OPEC, the Organization of Petroleum Exporting Countries, the classic international cartel. In fact, these prices have always depended far more on behavior and consumption habits in the industrial world than on the hopes and wishes of the 13 governments that operate OPEC. The first great jump in oil prices, in 1973-74, came at the point at which the industrial countries, after a quarter of a century of the most rapid development in their history, overshot the world's capacity to produce oil. Failing to grasp that lesson, they accelerated again in the late 1970s to a point at which the Iranian revolution, and the sudden drop in Iranian exports, set off another crisis. In early 1973 a barrel of Saudi light oil cost about $2; in late 1981, the price was $34.
By the 1980s the lesson was finally learned and the industrial countries were working hard and effectively to hold down their dependence on oil. At the same time, the new prices were bringing additional sources into production -- for example, the North Sea. Great Britain now produces more oil than any member of OPEC but Saudi Arabia, and occasionally in recent months may actually have been ahead of the Saudis.
With more competitors selling oil and less demand for it, OPEC has run into hard times. Light Saudi crude is down to $28. OPEC has been able to slow the decline by cutting its own production -- at present to less than half the levels of the late 1970s. The heaviest reductions have been borne by the Saudis themselves, now down to one-fourth of their capacity. Some OPEC members have been flagrantly violating the cartel's agreed limits on production. The Saudis are threatening to punish further cheating by opening up their own flow, recapturing their previous share of the market, and letting prices fall where they will.
The Vienna meetings beginning today will provide clearer indications of OPEC's intentions -- which is to say, Saudi Arabia's. Falling oil prices are good for countries trying to hold down inflation, and they are good for economic growth worldwide. But the harsh lessons of the earlier oil crises still apply. Regardless of falling prices, it will be crucial for the industrial countries -- and particularly the United States -- to keep reducing the rate at which they burn oil.