Abstract
A worldwide glut of petroleum will continue to put downward pressure on oil prices in the years ahead. Though the extent of price decline is difficult to predict, the author projects three separate scenarios based on market conditions prevailing in July 1985. The author thinks OPEC is likely to change its past strategy by emphasizing market share rather than price stability. In direct contrast to its current policy, the organization may announce a production floor rather than a ceiling and thus relegate the task of maintaining the price to non -OPEC producers. The Most-Likely Scenario assumes the price for OPEC's benchmark crude oil will decline from $28 a barrel in 1985 to $23 by 1987. It will remain there until 1990 and then increase only at the rate of inflation to $30.78 (current dollars) a barrel in 1995. This scenario assumes OPEC will refuse to lower its production quota from its current level of 16 million barrels a day. Under the Low-Price Scenario, Arab Light declines to $15 a barrel by 1987, gradually climbs to $20 a barrel by 1990, and $26 a barrel by 1995. This projection assumes a further deterioration of discipline within OPEC, resulting possibly in a loss of membership. The High-Price Scenario foresees Arab Light declining to $26 a barrel by 1987, remaining there until 1990, and then increasing by the rate of inflation to $36.47 by 1995. An environment of simultaneous rapid economic expansion and spiraling inflation would make this scenario probable.
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