Expected prices will shrink U. S. supply, boost demand

Powerful economic forces operating today are causing an unprecedented decline in U.S. crude supply. This disturbing fact remains inescapable, even though prices have recovered some from the low point they reached during the summer of 1986. The low prices that caused domestic oil production to plunge more than 800,000 b/d between February and December last year are also stimulating an increase in consumption, and causing a rapid growth of oil imports, mainly from OPEC sources. If current price levels persist, continued growth in demand for OPEC oil by the U.S. and other industrial nations can be expected until the current OPEC surplus capacity is largely worked off. This may occur within three to five years. At that point, consuming countries could again be faced with rapidly increasing world oil prices, caused by supply interruptions or other problems reminiscent of the tight markets of the 1970s. A healthy level of domestic petroleum production is one major hedge against the hazards of overdependence on insecure and increasingly costly foreign oil. But current government policies are doing little to prevent the further deterioration of the already weakened U.S. petroleum industry.