Abstract

There is great uncertainty about the supply and demand and price of petroleum products. The semi-free market environment products. The semi-free market environment that existed prior to 1973 has long since disappeared. The political and economic situation of the world is becoming even more complex and unpredictable, resulting in greater uncertainties in commodity prices in general and petroleum products in particular. In the last two years we have seen wild fluctuations in oil prices that ranged anywhere between $30 per barrel to $9 per barrel. These sharp per barrel to $9 per barrel. These sharp cycles in prices have made it virtually impossible to predict the next price cycle, which makes forecasting future exploration, drilling and production almost a futile exercise. The prospect of a ceasefire between Iran and Iraq has pushed oil futures higher due to the belief that such a ceasefire would lead to greater cooperation within OPEC. The contention that the oil prices would increase as a result of the ceasefire is speculative in nature and does not take into consideration factors such as production history, reserves and a possible economic slowdown in the Western economies following the present expansion. In this paper, production and reserve figures were examined for OPEC in general and Iran-Iraq in particular. Based on these figures, a production rate was forecasted for OPEC which was added to the non-OPEC production. The combined rate was matched with production. The combined rate was matched with calculated future demand figures based-on the forecasted growth rate in the Western and other economies. Knowning the probable supply and demand, the study covers the next five years which will possibly be the most turbulent, at least as far as the oil prices are concerned. It was concluded that oil prices will remain in the 15–18 dollar/barrel range until 1995. After 1995, an upward pressure on prices could develop, but price increases will not be as dramatic as the increases seen in 1973 and 1980.

Introduction

In the 1960's oil replaced coal as the main source of the world's primary energy. Since the beginning, the oil industry was troubled with events that were not particularly related to the technology of its production, but often were political in nature. Such political events were aimed at controlling political events were aimed at controlling production and/or prices to the point where one production and/or prices to the point where one could safely say that a true free market never existed as far as the oil industry is concerned. Nevertheless, a semi-free market did exist prior to 1973 as demand for oil was doubling every ten years. Prior to 1970, the oil industry was largely controlled by the major oil companies and although OPEC existed, it had a very limited role in controlling production and/or prices. In 1970, confrontations between the prices. In 1970, confrontations between the producing countries and the operating companies producing countries and the operating companies began to appear, particularly in Libya. The oil companies and OPEC began to have conflicting interests and each group sought to dominate the oil market. Since most of the oil companies are of a Western origin, their mother governments interfered to protect them from OPEC, thus setting the stage for great instability in the oil market.

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