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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: upanddown who wrote (15090)	3/17/1998 3:11:00 PM
From: RGinPG	Respond to of 95453

wtrg.com OPEC's Failure to Control Crude Oil Prices OPEC has seldom been effective as a cartel. During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned other members of OPEC that high prices would lead to a reduction in demand. His warnings fell on deaf ears. The rapid price increases caused several reactions among consumers: better insulation in new homes, increased insulation in many older homes, more energy efficiency in industrial processes, and automobiles with higher mileage.ÿ These factors along with a global recession caused a reduction in demand which led to falling crude prices.ÿ Unfortunately for OPEC only the global recession was temporary. Nobody rushed to remove insulation from their homes or to replace energy efficient plants and equipment -- much of the reaction to the oil price increase of the end of the decade was permanent and would not respond to lower prices with increased demand for oil.ÿ From 1982 to 1985 OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure as various members of OPEC would produce beyond their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its production to stem the free falling prices. In August of 1985, the Saudis tired of this roll.ÿ They linked their oil prices to the spot market for crude and by early 1986 increased production from 2 MMBPD to 5 MMBPD.ÿ Crude oil prices plummeted below $10 per barrel by mid year.ÿ A December 1986 OPEC price accord set to target $18 per barrel was already breaking down by January of 1987. Prices remained weak. The price of crude oil spiked in 1990 with the uncertainty associated Iraqi invasion of Kuwait and the ensuing Gulf War, but following the war crude oil prices entered a steady decline until in 1994 inflation adjusted prices attained their lowest level since 1973.ÿ The price cycle then turned up. With a strong economy in the United States and a booming economy in Asia increased demand led a steady price recovery well into 1997.ÿ This came to a rapid end when the impact of the financial crisis in Asia was underestimated by OPEC.ÿ In December, OPEC increased its quotas 10 percent to 27.5 MMBPD but the rapid growth in Asian economies had come to a halt.ÿ If the EIA's crude oil price forecast is on target, this year will, on an inflation adjusted basis, surpass 1994 as the worst year for oil prices since 1973.ÿ wtrg.com