OPEC meets two or three times a year to set the amount of oil each of its fourteen member countries will produce. The cartel does not keep secret its market manipulations; you can find its “Crude Oil Production Allocations” right here on the Web:
www.opec.org/home/Production/productionLevels.pdf
OPEC, the Organization of Petroleum Exporting Countries, controls the world price of oil by controlling its production. Were OPEC to cut production 10 percent, the resulting shortage would send the world price of oil higher than we have ever seen. The organization doesn’t do this for two reasons. First, its members find it hard to agree on which of them will cut back and by how much. They also know that the world would take one look at such high prices and begin to cut oil use, just as it did once before. Let’s take a look back at this history to understand better the process of conserving oil and energy and why it frightens OPEC.
OPEC tripled the price of oil in 1974, then doubled the resulting price in 1979. By 1981, a worldwide reaction forced Saudi Arabia, OPEC’s leading supplier, to cut production in order to keep the price from falling below OPEC’s target level. By the end of 1985, Saudi Arabia had cut its production 75 percent and could afford no more cuts. It abandoned the cartel rules, stole business from other cartel members, and let the price collapse. This ended a twelve-year price shock that is by far the largest experiment in energy policy ever conducted. The experiment did much harm and, quite by accident, much good as well. The results surprised people in three ways:
• The high prices triggered more conservation than most experts had thought possible.
• This conservation brought down the price of oil for eighteen years.
• High energy prices led to reductions in carbon dioxide emissions.
The importance of the carbon dioxide reduction did not become apparent until later.
