There is great uncertainty about the supply and demand and price of petroleum 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 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 excerise.
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 calculated future demand figures based on the forecasted growth rate in the Western and other economies.
Knowning the probable supply and demand, the 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.