IN THE LAST 20 years or so, the oil industry has witnessed many changes in the way crude oil prices have evolved. Influenced not only by market conditions but also by the policies of producers and consumers, prices reached unprecedented heights in the early 1980s. but eventually declined dramatically in 1986. Since then, they have been generally low and the market volatile, although there have been short spells at higher levels.In this paper, the major factors that have influenced price deveIopments are discussed briefly. The future course of oil prices and the supply/demand fundamentals that are likely to influence them will be reviewed in the light of OPEC producers' quest for stability in the market and the maintenance of the role of oil in the energy spectrum.The environment and climate change debate may have started only a few years ago, but it is already obvious that, depending on its outcome, it is likely to influence development in the energy and oil markets for a long time to come. Its impact on oil demand is thus discussed, together with its implication for oil prices.
Mr Al-Fathi is Head, Energy Studies Department, at the OPEC Secretariat in Vienna. He wishes to thank the staff of his Department, who have helped or made valuable suggestions during the preparation of this paper.Winter 199 1 335The fortunes of OPEC, and the world petroleum industry in general, in the 1980s cannot be isolated from the development of demand and supply fundamentalsparticularly the sharp decline in world oil demand, as it fell from as high as 52.6 million barrels per day in 1979 to 45.6 mbld in 1985, before gradually rising again to 51.9 mbld in 1990. Supplies, other than OPEC crude oil, however, have persistently continued to increase from a level of 22.7 mbld in 1979 to 29.1 mb/d in 1990, although the rate of increase has subsided in the last few years. Therefore, OPEC production, influenced by these developments, declined from 30.9 mb/d in 1979 to as low as 15.4 mbld in 1985, before gradually rising to around 23 mbld in 1990 (figure 1). Figure 1 World oil consumption and production, 1960-90 mbld 55 45 35 25 15 5 60 65 70 75 80 85 90These fundamental changes can be attributed to:1. The sharp adjustments of oil prices of 1973 and 1979 and the maintenance of high prices up to 1985, which encouraged investment in non-OPEC oil, the conservation of energy in general and oil in particular, as well as substitution away from oil in major sectors of the economy. Even the price collapse of 1986 and the moderate prices since then could not improve the rate of recovery of oil demand, due to the irreversibility of these changes.2. The long-term slow-down in the economic activity of the OECD, compared with the 1960s and early 1970s. and the recessions of 1973174 and 1981/82 in the OECD and that of 1990 in the US.
