Outlook for world oil prices. [1982-1995]

This paper considers possible trends in the price of world oil on an annual basis from the present through the year 1995 and considers the factors that will influence these trends. The analysis provides two major conclusions. First, world oil prices are expected to remain relatively flat over the next few years, though temporary imbalances in supply and demand can cause temporary alterations in this general pattern. Second, major increases in the real price for world oil are still projected to occur sometime before 1990 and during the 1990's, as increased demand resulting from income growth begins to outweigh savings from the conservation and fuel-switching initiatives brought on by the price increases of the 1970's. This growth in world demand for oil is projected to reduce excess production capacity during the 1980's and, as a result, to allow OPEC and other oil exporters to increase prices at an accelerated rate. Put another way, world demand for oil is projected to run into the capacity constraint of a finite resource, a resource that is used faster than it is replenished. Assuming continued world economic growth and relatively unchanged world oil potential supply, major price increases would be necessary to keep demand and supply in balance.