OPEC has thrown in the towel, abandoning its futile effort of the past several years to prop up prices by cutting back production. Instead, the cartel last weekend decided it would fight for what it called "a fair share" of world markets.
That foreshadows a price war with non- OPEC producers such as the North Sea bloc and Mexico, with a huge benefit to consumers and to world economic growth. It reverses the process set in motion when, between 1973 and 1979, OPEC jumped the price of oil in a series of "shocks" from around $3 a barrel to $34 a barrel.
That threw the world economy into a turmoil, symbolized by recession and the Third World debt crisis, from which it still has not emerged.
Now, Saudi oil minister Sheik Yamani forecasts a drop from the current $28-per- barrel benchmark to $18 a barrel by August. And analyst Philip Verleger of Charles River Associates of Washington comments: "I think he's right -- maybe more."
Yet, in the face of this incredibly good news, there are the naysayers who would have us believe that the price can drop too quickly, and somehow pose as much of a danger to the global economy as did the earlier price-rise "shocks."
That the change is traumatic the oil business goes without saying. Verleger has calculated that in just the few days since the OPEC decision, the drop in spot oil prices has caused a $12 billion loss in the value of inventories of oil and oil products.
Also, those who worry when oil prices go down cite the problem that will be created for Third World debtor countries that also produce oil, such as Mexico. On the other hand, lower prices will help other Third World debtor countries that are oil buyers, such as Brazil.
As Lawrence A. Goldmuntz, president of the Economics and Science Planning firm of Washington, points out, while a 20 percent drop in international oil prices would cost Mexico $3 billion in export earnings, it would also likely drop interest rates 2 percent, saving Mexico about $2 billion on its nearly $100 billion debt.
Also, Mexico, like other nations, would benefit from a boost in economic growth stimulated by lower oil prices and a dip in interest rates.
There are several other things about oil and OPEC that should not be forgotten amid the panic that seems to grab some observers whenever there is a prospect of a sharp decline in oil prices.
First, prices are still high, despite a 25 percent slide in the average dollar price since the 1981 peak. At $28 a barrel, the Morgan Guaranty Bank points out, real prices, relative to prices of other world products, are within a hair of the peak.
So don't cry for OPEC. The problem it now faces -- a world awash with crude oil capacity -- is one its own greed created. When OPEC pushed up prices after 1973 with no regard for the impact on the world economy, it set off a wave of exploration, on the one hand, and conservation, on the other, that spelled its own doom.
After Iraq and Iran went to war, diminishing the quickly available supply of oil, the remaining members of the cartel could not be restrained: they gouged the consuming nations and shot OPEC production up to 31 million barrels a day.
Now the real world has caught up with OPEC: the cartel's production has plunged this year to 17 million barrels a day or less. But non-OPEC production, which was only 21 million barrels a day in 1979, will be 26.4 million barrels this year.
That's the rationale for the new strategy. Instead of trying to boost prices by holding oil off the market, OPEC now wants to sell more, even if it has to take lower prices. "It's been something we wanted to do but haven't been bold enough to say," Nigerian oil minister Tam David- West told The Wall Street Journal in Geneva. "Nobody here wants OPEC to serve as the world's marginal oil supplier any longer. . . . A fair market-share for OPEC is the one you go out and take."
Well, that should be plenty interesting. Huge gains in stock and bond prices, and a plunge in energy futures, suggest that industry and financial experts look for only one way for oil prices to go: down sharply, along with interest rates.
Not everybody, of course, agrees. John Lichtblau, head of Petroleum Industry Research Associates, says that the $20-a-barrel price mentioned by many analysts is possible, but not ensured. And Verleger cautions that because of the Environmental Protection Agency's phasing down of the lead content of gasoline, the decline in prices at the pump may not match, penny for penny, the drop in crude oil.
But that will be temporary. Unless Yamani and friends can sign up Margaret Thatcher, the Mexicans and all other producers for membership in OPEC, oil and oil-product prices are going down. It's the best economic news in a long time.