CRUDE ESTIMATE - STRENGTH IN OIL PRICES ISN'T LIKELY TO LAST, MANY ANALYSTS THINK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000605740089-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2012
• Sequence Number: 89
• Publication Date: April 23, 1985
• Content Type: OPEN SOURCE

Declassified in Part - Sanitized Copy Approved for Release 2012/05/18: CIA-RDP90-00965R000605740089-6
Crude Estimate
Strength in Oil Price
Isn't Likely to Last,:
23 April 1985
Among the factors leading Salomon and Private
others to expect lower prices are sluggish (The squeeze pushed up crude-oil
but many traders
da
t
world oil demand, large amounts or bar-
tered oil on the market, continued skepti-
cism about whether OPEC members will
stay within their production quotas, contin-
uing increases in non-OPEC production,
and the slowing rate of economic growth in
the U.S. But if the outlook is that grim, how
Many Analysts Think
Recent Rises Don't Reflect
Much Gain in Demand;
Barter Distorts Supplies
What the. CIA Was Told
By YoussEF M. IBRAHIM
And ALLANNA SULLIVAN
Staff Reporters of THE WALL STREET J OURNAL
When last January's meeting of the Or-
ganization of Petroleum Exporting Coun-
tries broke up in disarray, conventional
wisdom in the international oil fraternity
was that prices were heading for a slide.
Since then OPEC has surprised skeptics
by seeming'to enforce at least partial pro-duction - discipline. Oil : companies : have
drawn ? down inventories sharply, suggest-
Ing ` they..must- soon, increase their,'pur-
chases. And prices have gone up some 15%
instead of down.
The conventional wisdom today: Prices
are still heading for a slide. "The bleeding
has stopped,' but the patient hasn't recov-
ered," says Lawrence Goldstein, the exec
utive vice president of the New York-based
Petroleum Industry Research Foundation.
Analysts and industry officials say the
pressures that have pushed free-market
prices for such bellwether crude oils as
West Texas Intermediate to $29.60 a barrel
yesterday from a low of $25.20 in January, are only temporary: Says' one forecast;
produced. by the Wall Street firm of Salo-,
mon Brothers Inc.: "We now see factors
developing. that are setting the stage for,
the next downturn.",
Advantages for Many
If so,; that is' for the. most part good
news for the U.S. and other industrialized
nations,.: Oil-price moderation.has been a
major restraint on inflation and interest
rates, and more price weakness could help
stretch out a slowing U.S. recovery, ;econo-
mists say.'
Softening oil prices would also be good
news for the strained international banking
system and for big Third World debtors
that still import substantial quantities of
oil. For debtors. that export oil, such as
Mexico and Nigeria. the price news isn't
good, but the interest-rate implications"
are.... :.... ,.- .. ...,~ ... .
come prices are up not down?
Trend in Oil Prices.,,:.
Russian Supplies erosion over the course of the next year or
two," says Adam Sieminski, an energy
.One answer is that the balance of sup- specialist at Washington Analysis Corp., a
ply and demand, if not as strong as pro- consulting firm in the capital.
ducers might like, is much better than was That was also the consensus at a by-in-
expected a few months ago when OPEC vitation-only meeting on the oil outlook
seemed near collapse. "OPEC managed to sponsored by the Central Intelligence
keep prices from sliding over the cliff this Agency two weeks ago A pane of 14 ex-
winter," notes Robert Dederick, vice presi- 1 its from industry, Wall Street and think
dent and chief economist for Northern I tanks answered questions from A and
Trust Co. in Chicago. other government-agency analysts at the
OPEC had help. - " closed meeting.
A big drop in the delivery of Russian Although opinions on the panel varied,
crude oil and refined oil products to West- the majority held that prices will decline
ern Europe, induced by domestic shortages during the next two to three years to $23 to
of West Texas Intermediate..;.:;:
y,
er
tures prices yes
remained bearish for the longer term; see
page 50. On page 6 is an article on pros-
pects for increasing U.S. dependence on
energy imports.)
Most market gurus don't think the
strength in crude-oil prices can last. "We
won't have a collapse overnight, but funda-
mentals say it would be hard to prevent an
strength by the 1990s. For the near-term,
prices may remain firm until the summer,
although there will be day-to-day fluctua-
tions, panelists generally believed.`::
i. IOne reason for expectations of longer-
term decline is'that recent price increases
don't seem to reflect a recovery in world-
er
l
i
u,n
ona
wioe aemanu. The Internat
;,Agency estimated in' its :end-of-March
!monthly oil-market report that oil con-
sumption in OECD nations was 2.3% lower
in the'1984 fourth quarter than a year ear-
lier. It was probably down about 2% in the
first quarter also, the IEA said.
Several industry officials an d large in=
!ternational.: traders also expect OPEC
members to exceed their production quotas
as the lure of larger oil income becomes ir-
resistible:::=
i
and rough weather, cut suppl
es on - increase in. exchanges of oil fother
market for much of the winter. Lastyear, , a trader
th
the Russians. shipped member. countries of gnods. a : major Houston-based exchanges of oil for o
the Organization for Economic Cooperation notes.: "Every barrel of bartered ?oil that
and Development as much as 2.3 million works its way into the market ends by .
barrels a day of oil and products, accord- backing out some other oil." . = =
ing to the Paris-based International 'En- Over the past few weeks, a considerable' ergy Agency- But in the 1985.first quarter, number of barter arrangements have been
signed by -Iran, Iraq, Libya and Algeria.
=
lion barrels a day.
On the demand side, an ll-month coal
miners' strike led Britain to consume an
extra 500,000 barrels of oil a day this past
:
quarter:to- generate electricity.
>I vague denial of some aspects of the deal,.
And, paradoxically, industry expecta-1
tions of lower oil prices have supported the' they confirm that oil is under consideration
~
as a method of payment for Mirages.-...-
rice bubble, says Philip Verleger,
t
-
p
curren
_I
a consultant with Charles River Associates
Inc. in Cambridge, Mass. Such expecta-
I tions have kept inventories. "lean and
i mean," he says, noting that "the real
tightness during recent weeks has been for
promptly delivered oil.'.' .-
Saudi, Arabia is currently negotiating as gi-
ant swap with France to get 46 Mirage-2000
jets for $2 billion of.. oil, or the equiva-
lent of 70,000 .barrels a day over. three
CortCfnued
Declassified in Part - Sanitized Copy Approved for Release 2012/05/18: CIA-RDP90-00965R000605740089-6