"OPEC, Meet Adam Smith,"
NewsWeek, October 29, 1984. p.98-9.
Basic
Arguement:
The oil market is moving away from the previously dominating contracts to
purchasing at need from market prices.
Summary:
The week preceding the article, three major oil-producing countries (Great Britain, Norway, Saudi Arabia) cut official prices to match free-market quotations and thus causing a dramatic drop in market prices. In reaction, OPEC called an immediate special meeting to plan a new strategy for oil prices. This reaction by OPEC has shown a fundamental shift in how the market has changed. For the first time OPEC is in a defensive and reactionary position instead of its normal dictatorial position.
For the better part of a decade, oil supplies were tight
and the oil companies were virtual beggars at the OPEC throne. But in recent years, recession and
conservation have reduced oil consumption and contributed, along with increased
exploration by non-OPEC nations, to a buildup of inventories and a huge surplus
in worldwide crude-production capacity; now the major companies can shop for
bargains on the spot market, where prices reflect true supply and demand.
Because long-term contracts
for OPEC oil were riddled with room for circumvention, they could be easily
placed aside. This ability allowed
countries to move away from the formerly popular contracts and buy however much
oil was needed at a market price.
Despite downward pressure on the market, few experts are anticipating a
crash in crude-oil prices, but rather most agree that the markets overall
outlook is “bearish.”