ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Shadow-Boxing in OPEC

Shadow-Boxing in OPEC ISG TWO very interesting developments have taken place with respect to oil. One is that OPEC was put on notice by Saudi Arabia that the organisation must evolve and establish effective procedures, more effective than in the past, to monitor the observance of price and production discipline because the Saudis were unable to play any more the role of a swing producer, i e, of a producer who varies his output with a view to so balance market of oil supply, including supply from other OPEC members, with its demand that the price agreed upon among the producers is possible to maintain. The other development is that Mexico, a non- OPEC net exporter of oil, which until the other day, was observing voluntarily the OPEC discipline, has decided to break rank and unilaterally reduce the price of its oil by an average of $ 1.50 per barrel How does one assess these developments? Do they presage the break-up of the oil cartel and a free fall, as they put it, of the price of oil? Writing on the eve of the OPECs abortive meetings, just ended in Vienna, the Wall Street Journal posed the same issue in the following words: "When the oil ministers of the financially pressed and divided nations meet in Vienna at the end of next week to try to stabilise the sagging oil markets they will be staring over the edge of a precipice. At the bottom: the spectre of a smashed cartel and a $ 20 barrel of oil!' It is true that the share of OPEC in world oil production has declined considerably over the past decade starting with 1974, the year of the first round of oil price rise. The decline has been from a share of over half in 1974 to less than a third in 1984. OPECs share in world net oil exports (defined as the aggregate of oil trade balances of countries that are net oil exporters) has declined during the same period from over 90 per cent to a little below two-thirds.

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