Oil-producers' cartel takes another turn Production cutbacks: Discipline needed to stabilize higher prices is probably just temporary.

March 25, 1998

IF COLLUSION among oil-producing countries to restrain trade works, U.S. motorists will soon pay a nickel more for a gallon of gasoline, but nothing like the 20 cents more they paid a year ago.

The leading members of the Organization of Petroleum Exporting Countries (OPEC) plus non-member Mexico, agreed Sunday to cut production quotas, hoping to reduce world production by 2.6 percent. This was a change for Mexico. Powerful Norway has not decided whether to go along.

In November, OPEC raised production quotas, if only because some members were tired of other members cheating. Now that increase is rolled back. Two things happened: the mild winter in North America and northern Europe and the retraction of Asian economies that had been projected to consume more oil.

Oil is a finite resource, but it is in oversupply now. Acting to stabilize production and price in relation to demand is healthy. Rather than being a menace to U.S. motorists, the new policy is an attempt to keep the cost of owning such vehicles predictable.

But even at its most benign, this deal is unlikely to last. As long as poor and ambitious countries see salvation in oil reserves, the compulsion to develop production is unstoppable, governed by producers' appetites, not consumers' demand. The current glut developed while Iraq's production was off the market; Iraq's robust return is only going to make it harder for other countries to cut back.

OPEC was always a conspiracy against the consumer, but never a successful one.

Pub Date: 3/25/98

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