Oil Price: Holding, Holding...

During the four months since OPEC set a ceiling on production and lowered its official price for a barrel of oil by $5—at a meeting in London which many doomsayers had predicted would be followed by a "collapse" of the market—the new price of $29 has been holding firm.

The main reason for OPEC's success has been the fact that markets have been improving. Economic conditions worldwide, with the U.S. in the lead, are getting better, and oil companies are beginning to replenish their inventories. The result is that OPEC countries' production has gone up from about 14 million barrels during the winter to a point just below the production ceiling of 17.5 million barrels a day.

In fact, the market prospects are such that at an OPEC conference held in Helsinki during July, there was a consensus that the ceiling could be raised soon. This could happen even before the next regularly scheduled OPEC minister's conference set for Geneva in December. One proposal discussed at Helsinki calls for the first rise in the ceiling to be in the order of 500,000 barrels a day. Some delegates were also talking about raising the price per barrel by one dollar, but most delegates seemed to support the Saudi Arabian petroleum minister, Ahmed Zaki Yamani, in his contention that the official price should be held steady until the end of 1985.

If and when the ceiling does get raised substantially, the OPEC members will have to contend with the formidable problem of allotting new production quotas for the individual countries. Most delegates at Helsinki seemed to believe that the way to handle it would be to authorize an across-the-board percentage increase for all members. But a number of countries have reasons for wanting a steeper readjustment of their quotas.

Among them is Saudi Arabia, which took the biggest cut in output last winter in order to support prices, and now believes it should be allowed a proportionately greater share of the rising production. Other countries that have large populations and are relatively strapped for funds, like Nigeria, Iran, Algeria and Indonesia, also believe they should be allowed to have a larger than average quota next time. In contrast, one of the wealthier countries, Kuwait—which has enough financial reserves to tide itself over the rough places—is so concerned with conservation of its oil resources that it prefers not to have a higher quota.

As the production ceiling keeps rising, the need for self-discipline on the part of OPEC producers in sticking to their quotas will become more acute. During periods in the past, prior to the fixing of a new price and a new ceiling last March, Iran and Nigeria were both exceeding their allotted production. Another long-term problem is that OPEC countries no longer have the majority share of the global oil market, as they used to (down from 60 percent to 35 percent), and must worry about growing competition from non-OPEC producers like Britain, Mexico, Norway and the Soviet Union. Although these countries have recently been cooperating with OPEC, the organization's officials are aware that attitudes could change overnight under the influence of domestic pressures.