The Navy and the stock market crash might prove as important as the law of supply and demand when oil ministers from the 13 members of OPEC convene this week in Vienna, and all three factors suggest the same outcome of their year-end meeting: no increase in the official price of oil.
That would mean a setback for pricing hard-liners led by Iran and a delay in a widely predicted timetable that had the Organization of Petroleum Exporting Countries boosting its price to $20 a barrel from the current $18 by the end of the year.
There are oil experts who still hold to that view, noting that unchanged prices actually mean lower real prices because of the sharp fall of the dollar, the currency in which oil is traded worldwide. By one estimate, the $18 official price established a year ago is the equivalent of about $15 today in terms of what the money will buy.
But the consensus is that, if oil prices change at all, they are more likely to drop than to climb unless OPEC drastically cuts output. The reasons include brimming oil company inventories, weak spot prices, deep economic uncertainty and the diverse fallout from Iran's deepening feuds with the rest of the world, including the new U.S. military role in the Persian Gulf.
Iran's growing isolation was underscored last week by a bitter public exchange between its oil minister and his Saudi counterpart that seemed to promise an especially prickly meeting, even by OPEC standards. Some concluded they would do well to maintain the status quo.
"To hold the price at $18 would be a big accomplishment," said Hossein Tahmassebi, the chief economist at Ashland Oil Co., who sees a $3 per barrel fall in spot prices early next year.
However, the cartel hopes to take other steps at this week's meeting to strengthen OPEC in the longer term. The top priority has been attached to bringing Iraq under the year-old production quota umbrella, a move that would trim the cartel's total production and arguably diminish cheating by other members as well.
Already, Saudi Arabia and other members of the moderate Gulf Cooperation Council have signaled their intent to come to terms with Iraq. Success on that front would lend stability and believability to the organization's year-old effort to re-establish its control over oil markets, analysts agree.
But OPEC remains divided over how quickly it should move, and that dispute overhangs this week's meeting.
OPEC's largest producer, Saudi Arabia, and allies Kuwait and the United Arab Emirates, continue to counsel patience and stable prices to gradually make the United States, Europe and Japan more dependent on OPEC's low-cost oil.
The idea was spelled out last month by OPEC's president, Nigerian Oil Minister Rilwanu Lukman, at a November meeting in Indonesia: "Our long-term strategy is to keep the price of oil at such a level that it would encourage people to use more oil necessities and discourage the development of very expensive oil, such as in the North Sea and the Alaskan area."
That scenario has already begun to play itself out since a glut of oil collapsed the world price of crude to $10 from $30 a barrel in the first half of 1986. Their domestic economies devastated--OPEC producers saw revenue plunge to $81 billion from $135 billion--cartel members agreed in December, 1986, to slash production and set an official price of $18 a barrel.
That price has come to represent a comfort zone for key OPEC members and has the virtue of being too low to make it worthwhile for the United States and other non-OPEC producers to keep pumping and looking for oil. The moderate price has caused consumption to rise, non-OPEC production to fall and the cartel's share of the world oil market to begin climbing after a five-year drop.
Easier for Some
Over the past year, Saudi King Fahd has consistently advocated prices at $18 a barrel through 1988. In a U.S. speech in November, Saudi Oil Minister Hisham Nazer noted that his country's massive oil reserves give it "a longer time horizon in looking at the global oil industry."
But patience is easier for such sparsely populated, oil-rich members as Saudi Arabia and Kuwait than it is for hard-pressed members with less oil and larger populations to support. They seek higher prices now.
As this week's meeting draws near, as many as nine OPEC members fall in the latter category. The price hawks are led by an increasingly desperate Iran, its oil production badly damaged by Iraqi fighter planes. A higher price would offset the effects of production volumes that reportedly fell 500,000 barrels a day below Iran's quota last month.
"Iran will endorse no decision which should fall short of compensating for the slump in dollar value," Iran Oil Minister Gholamreza Aghazadeh told Tehran Radio last week.