Oil prices continued to bounce back yesterday on spot markets, wiping out part of the plunge that occurred in the wake of the announcement last weekend that OPEC was going to concentrate of selling more oil rather than holding down production.
The prices were still about $3 a barrel, or 10 percent, lower than they were during much of November. And whatever happens in coming days as the market tries to find a new price level, analysts still are confident that more declines will come in the spring when demand drops seasonally.
After all the recent gyrations, crude prices are just about where they were a year ago. Prices climbed for a while last spring when OPEC managed to add a bit more discipline to the market than had been expected, and again this fall when both crude oil and refined product inventories had dropped to unusually low levels.
Home heating oil prices on the spot market, in particular, jumped from a low of about $28.50 for a 42-gallon barrel in late July to more than $37 at the end of November.
Now inventories of both crude oil and refined products are rising, though only gasoline stocks are yet within normal ranges, according to Energy Information Administration figures.
Just about every economic forecaster is plugging in an assumption about lower oil prices as they look ahead for 1986. For instance, Allen Sinai, chief economist of Shearson Lehman Bros., thinks oil prices could well fall far enough to clip between 1 and 2 percentage points off what otherwise would be next year's inflation rate.
If the oil price decline is that large, it likely will more than fully offset the boost to inflation that analysts expect to result from the big drop in the value of the U.S. dollar on foreign exchange markets. A lower dollar means that imports cost more in dollar terms, adding to inflation. More expensive imports may also allow competing U.S. producers to raise prices of their goods in American markets.
If inflation is held down by falling oil prices, the lower rate of inflation could lead to faster real economic growth. It could do so directly, with a given increase in current-dollar gross national product having a larger "real" component and a smaller inflation component.
Lower inflation could also help persuade the Federal Reserve that it could safely pursue an easier course for monetary policy, which otherwise might run a serious danger of faster price increases, analysts argue.
Alan Greenspan of Townsend-Greenspan & Co. believes the recent softness in oil prices -- aside from the sharp reaction to the OPEC announcements -- has been the result of the arrival of an increased number of cargoes of imported oil, which rose significantly in November. "The long-expected decline in crude oil spot prices has arrived," he said.
"Spot prices have been high because oil companies, expecting a sharp price decline, have been keeping exceedingly low inventories and were willing to pay steep premiums to fill requirements. In addition, the level of stocks in transit also has suffered a decline," Greenspan explained to his clients this week.
He went on to predict, "If in the spring several [Persian] Gulf states continue their high levels of production and price their products to follow the spot market down, a collapse in oil prices to below $20 per barrel would surely ensue."
Meanwhile, the expectation of weaker long-term oil prices -- and falling natural gas prices, too -- are continuing to hurt plans for oil and gas exploration and production outlays in the United States. For instance, the number of rotary drill rigs in operation recently has dropped to the lowest levels since 1976.