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Excess production and production capacity reasserted their influence in worldwide petroleum markets last year, pushing crude oil prices to their lowest levels since before the Persian Gulf crisis.
The development ended the relative price stability that has characterized the period since the crisis ended in January 1991. One of the major questions now being asked is whether there has been a downward shift in the seasonal range of crude prices.
Until the second half of last year, prices in the past several years had fluctuated seasonally within the $16-20/bbl range for the weekly average of world export crude oils. The annual average was slightly below $18/bbl.
Some analysts have concluded that this band has fallen to $12-16/bbl.
A bright spot this year is worldwide demand, which should increase as member countries of the Organisation for Economic Cooperation and Development recover from recession and the U.S. economy continues to grow,
Developments in the Commonwealth of Independent States will remain a crucial variable in the market during 1994. The region's transition to a new economic system has been difficult. Production is falling, but low internal consumption has enabled the C.I.S. to keep exports at robust levels.
A crucial change in the market has been production capacity of members of the Organization of Petroleum Exporting Countries relative to world demand. With demand stagnant and significant volumes of production coming on stream outside the exporters' group, the call on OPEC crude has not kept pace with capacity growth, The group thus must produce at less than capacity levels or allow prices to collapse as they did in 1986.
In the near future, OPEC's degree of success in balancing the market will be a key to prices. Another is politics in the Middle East. If it were not for a United Nations embargo, the market would have another 2-3 million b/d of oil supply--from Iraq.
A decline in worldwide demand for petroleum products was a major reason prices weakened toward the end of the 1993.
Economic problems in the C.I.S., Europe, and Japan offset oil demand gains in the growth economies of Asia-Pacific, …