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The oil oversupply has led to subtle price discounting, which enables some petroleum-producing states to unload part of their excess while keeping the.of-ficial price intact. OPEC'S price is pegged to the $10.46 that Saudi Arabia charges for its high-quality light oil; all other cartel crude is priced above or below that figure, depending on quality, shipping costs and other factors. Algeria's price has dropped from $14 per bbl. a year ago to $12 now, largely because premium charges for high quality and other factors have been removed. Libya has recently been forced to trim up to 29e off its exceedingly high basic rate of $11.86, and Abu Dhabi has had to pare 380 from the $11.38 that it charged for its best lower-sulfur fuel.
Yet no major price break is possible unless Saudi Arabia and Iran cut their prices—and they have not budged.
Most of the other OPEC members need the cartel and would probably not dare cut prices individually. Of course there is a point at which some countries would do better outside the cartel, but it is uncertain how low demand would have to fall before that occurred.
Dollar Decline. Last week the Shah of Iran told Secretary of State Henry Kissinger that he did not expect prices to go down. Instead, the Shah said again that he wanted prices to move along with the general level of world inflation. As a consequence of inflation, the money that the producing countries get for their oil is buying fewer and fewer goods in the industrialized world. The OPEC countries' purchasing power has also diminished because of the recent decline in the value of the dollar, which is the principal currency for payment of oil. When the dollar's value depreciates, the oil states have to spend more for their imports from Europe and Japan. Cartel members will meet in Vienna this week, and the problems of inflation, the weakening dollar and the oil glut are certain to be high on their agenda.
The surpluses and strains confronting OPEC may be only temporary because they are created largely by the widespread recession. If the rest of the world is to bend or break the cartel, the pressure on OPEC must be continued. And the only effective means of doing that is through tough mandatory conservation measures and quotas or taxes on oil imports.