OIL MARKET ASSESSMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00153R000100100045-1
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 20, 2016
• Document Release Date: January 15, 2008
• Sequence Number: 45
• Publication Date: May 31, 1983
• Content Type: OPEN SOURCE

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TRANSMITTAL SLIP
1I FEB u . 94I REPLACES FORM 36
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WHICH MAY BE USED,
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Volume 1, No. 8
May 31, 1983
OIL MARKET ASSESSMENT
Philip K. Verleger, Jr.
Senior Advisor, International Energy Group
Drexel Burnham Lambert
Many observers of the oil market have expressed the view that
oil markets are following a pattern similar to those observed in
1982 or prior years. Th examine this hypothesis, changes in prices
in 1981, 1982, and 1983 have been computed on a standardized index
basis. The results show a striking similarity between events in
1983 and prior years.
WEEKLY FLUCTUATIONS IN NETBACKS FROM ROTTERDAM
FOR ARAB LIGHT (INDEX)
104 /`
102 1 e'-N
1981 -----
1982
1983 -?-?-
I I I I I I I I I I I I I
JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC
INDEX: FIRST OBSERVATION IN YEAR - 100
DREXEL BURNHAM LAMBERT
)inions and views expressed herein are solely those of the Author(s). As such, they may differ in material respects from those of, or expressed or
Iblished by or on behalf of, Drexel Burnham Lambert Incorporated ("DBL") or its officers, directors or other employees. Because of the volatile nature of
mmodity markets, such opinions and views are subject to change without notice. DBL and/or its officers and directors may hold similar or opposite
,sitions in the commodities discussed herein.
is report is based upon data believed to be reliable, but since it has not been independently verified such data is not guaranteed as to accuracy or
mpleteness. This report is provided for information purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy the
mmodities discussed herein
EXEL BURNHAM LAMBERT INCORPORATED. 60 BROAD STREET, NEW YORK. NEW YORK 10004 [phone]
ICAGO OFFICE ONE SOUTH WACKER DRIVE. CHICAGO, ILLINOIS 60606 [phone]
NOON OFFICE WINCHESTER HOUSE. 77 LONDON WALL, LONDON EC2N BE, ENGLAND 6283200
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"Deja vu: A french word which describes a feeling that
one has had a given experience"
The day to day change in spot market quotes for any comtndity
result from the interplay between supply and demand. Thus, attempts
to draw comparisons between the behavior of markets at one point in
the current year and the same point in earlier years will be frustrated
by the differences in market conditions prevailing at the time.
However, conditions behind oil markets in 1983 seem to be very similar
to those which prevailed in 1982 and, to an extent, those in 1981.
The similarity in price movements can be most easily noted by
the use of index numbers. With this approach, the transaction
price for a given day is expressed as a percentage of the price which
prevailed at a specific point of time. Here indexes of prices have
been ccanputed for netbacks on Arab Light at Rotterdam (Figure 1) and
Platt's New York Harbor Law's (Figure 2). In each Figure, the graphs
describe the movement of prices. during the year relative to the price
level which prevailed during the first week in January. Thus, the
index for Arab Light for the week ending may 20 (90.29 percent) equals
the ratio of the netbacks for the week ($ 27.15/bbl.) divided by the
netbacks for.the week ending January 1, 1983 ($ 30.07/bbl.) multiplied
by 100. The formula is written:
Index for May 20 = $27.15 x 100 = 90.29
30.07
Computation of price indexes for each year facilitates comparison
of movements between years. When ccanparing year to year changes in
netbacks, it may be observed that the pattern of price movements in 1983
closely followed the pattern established in 1982 through the end of
April.
In 1982 and again in 1983,, netbacks dropped by 14 to 16
percent over a short nine to twelve week period. In 1981, a
decline of a similar magnitude was observed over a ceaprable
twelve week period which began in the second quarter.
Netbacks rebounded quickly from lows in 1982, and again in
1983. In 1982, the rebound lasted twelve weeks and amounted
to twelve percent. In 1983, the rebound was shorter, lasting
only nine weeks, and amounting to only ten percent. In 1981,
the rebound was slower and more steady, lasting from mid'June
to the end of November.
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Indexes for changes in New York Harbor heating oil prices also
indicate a close pattern of parallel movements between 1982 and 1983.
(See Figure 2).
In 1982 and again in 1983, prices dropped by roughly fifteen
percent during the first twelve weeks of the year and then
quickly returned back to initial higher levels during the
next six weeks. This pattern differs fran the behavior
of prices in 1981 (when winter occured as scheduled).
Relative price stability was observed between April and
August in both 1981 and 1982. In 1983, a more cyclical
pattern seems to be developing.
WEEKLY FLUCTUATIONS IN NEW YORK HARBOR HEATING OIL PRICES
(INDEX OF PLATT'S LOW'S)
I I I I I I I I I I I I
JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC
INDEX: FIRST OBSERVATION IN YEAR ? 100
DREXEL BURNHAM LAMBERT
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9 ?
While comparisons of price indexes for 1981, 1982, and 1983 provide
a basis for identifying similarities in price movements during past
years, unfortunately, the comparison is less useful in predicting
future price movements. These changes will depend upon factors such
as:
The rate of economic recovery,
The recovery in consumption relative to economic growth,
Weather, and
The volume of petroleum produced.
Given the current circumstances, prices should remain soft through
July, probably following the pattern established in 1981. A slow
economic recovery, continued depression in petroleum markets, and a
surplus supply situation will contribute to this softness. Barring
a major economic problem, netbacks should begin to increase in the fall,
following the 1981/1982 pattern.
STAT
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