Like Chicken Little's warnings that the sky was falling, predictions of an imminent drop in international oil prices have proved premature—so far. Few experts now expect a major price cut soon. Yet all is far from well with the Organization of Petroleum Exporting Countries. Because world demand for crude oil diminished sharply in recent months, the cartel is feeling the strain of a rapidly building global surplus, and some prices are beginning to crumble around the edges.
Storage tanks in Europe, the U.S. and elsewhere are brimming with oil. In some cases, ships are being turned into floating petroleum repositories. Oil-heavy tankers on the long voyage from the Persian Gulf are being ordered to slow down, because there is no place for them to unload.
Part of the oversupply can be traced to fuel conservation and a relatively mild winter. But the chief reason for collapsing oil demand is that most industrial nations are in the midst of recession—a situation that OPEC's high prices helped create. To maintain their prices in the face of the oil glut, OPEC members have been forced to reduce production substantially from 1974's average 33 million bbl. per day. In the past couple of months, daily production has declined by 3 million to 5 million bbl.
Unexpected Crimp. Most significant, the two biggest producers have brought down their totals from late last year. Production has dropped in Saudi Arabia by 1 million bbl., to a total of 7.5 million bbl. In Iran, output has declined from 6.1 million bbl. to between 5.3 million and 5.6 million bbl. Last week Venezuela, which had already reduced output from 3 million bbl., to 2.6 million bbl., announced that it was trimming another 200,000 bbl. Pumping in Libya has been cut in half from last year's average, to 1 million bbl. a day. In January, Abu Dhabi dropped from 1.2 million bbl. to 700,000 bbl.
Shrinking demand is putting an unexpected, if bearable crimp in the oil revenues on which many of the more populous states depend for their ambitious and costly development programs. Iran, for instance, stands to collect $1.7 billion less in revenues this year than the $20.9 billion it received in 1974, unless present pumping levels are increased. Venezuela estimates that its oil income will be down $1.5 billion, from $9.3 billion last year.
Frustration is increasing among some OPEC members. Last week Abu Dhabi's Petroleum Minister Mani Said
Utaiba openly criticized OPEC for failing to coordinate its members' production schedules—that is, refusing to apportion the cutbacks so that no member suffers more than others. Utaiba also revealed that Abu Dhabi has ordered Western oil companies operating there to increase production immediately —leaving those firms to find a way to sell it. The companies had reduced pumping because Abu Dhabi's oil was more expensive and less profitable to market than petroleum in some other OPEC countries. Nigeria has also been prodding Western oil firms to boost production despite sagging demand.