The precipitous decline in oil prices is a shock to the world's oil markets as traumatic as the oil shortages of the 1970s, but this time oil producers are bearing the pain of the impact, John Lichtblau, president of the Petroleum Industry Research Foundation, said yesterday.
Oil industry and Department of Energy economists and others testifying before the Senate Energy and Natural Resources Committee yesterday warned against complacency in the face of cheaper oil, noting that a political disruption in the Middle East could rewrite everyone's predictions about oil prices. But there was no general agreement what prices will do in the absence of such a disruption.
"If world conditions remain stable, oil markets are likely to continue to slide or remain in equilibrium," Deputy Assistant Secretary of Energy Dennis O'Brien told the committee. O'Brien noted, however, that "the longer the current so-called 'glut,' or oversupply, in the world oil market persists in the early part of the decade, the higher global demand is expected to be later in the decade."
O'Brien said the Energy Department has heard estimates that 15 to 20 percent of oil produced by members of the Organization of Petroleum Exporting Countries is being sold at a discount and that OPEC's recent decision to cut production is unlikely to have much of a short-term impact on the market.
OPEC's economic committee will meet in Vienna next Monday to study supply and demand and pricing, according to the Gulf News Agency. The committee is to prepare a study to be presented to the regular OPEC ministerial meeting in Quito, Ecuador, on May 20.
Lichtblau said he believes that production, demand and price declines have about reached bottom. "They are likely to stay there for a while, after which production and demand will start rising again and prices will strengthen somewhat," he said. Lichtblau said he based that assessment on the notion that the recession and the reduction of inventory by oil companies are both near an end.
Lichtblau said that, although OPEC appears to have lost the ability to raise prices at will, "It has probably retained its ability to protect its existing floor price level." According to Lichtblau, current prices are 60 to 70 percent higher than what they might be under free market conditions.
Theodore R. Eck, chief economist for Standard Oil Co. (Indiana), predicted a modest upturn in petroleum demand over the next two to three years and said that the effect of some of the factors depressing demand may have been overstated.
"We're at an end of the period when U.S. imports were falling," Eck said. He said he is also worried that world oil markets may be heading for another "OPEC price shock."
Chairman James A. McClure (R-Idaho) warned that failure to plan now for possible oil supply disruptions may spell disaster in the future.