Newspaper article THE JOURNAL RECORD

Crude Oil Prices Could Be near $30 per Barrel in 1995/says Energy Security Study

Newspaper article THE JOURNAL RECORD

Crude Oil Prices Could Be near $30 per Barrel in 1995/says Energy Security Study

Article excerpt

By 1995, crude oil prices could range from $22 per barrel to $30 per barrel, U.S. oil consumption could increase, U.S. oil production could either steadily increase at a slower rate or decline, with imports balancing the equation, depending upon pricing scenarios used by the U.S. Department of Energy in its Energy Security study released to President Ronald Reagan March 17.

Using a lower and higher price scenario, the study reported that consumption in the United States would increase to between 16.4 million barrels and 17.7 million barrels per day in 1995 from 15.7 million barrels per day consumed in 1985.

Domestic production is projected to decline to between 8 million and 9 million barrels per day in 1995 from 11 million barrels per day in 1985.

Crude oil imports, the study concluded, could increase to 10 million barrels per day in the mid-1990s, from 6 million barrels of oil imported in 1986.

- The lower price scenario assumed prices of about $15 per barrel continuing until 1990. At that time, the world oil price would increase gradually to about $22 per barrel in 1995. The scenario also assumed the gross domestic product in the United States would grow at an average annual rate of 2.7 percent, and that the ratio between growth in energy demand and the increase in the gross domestic product would be about 0.6 percent.

- The higher price scenario assumed prices rising to about $23 per barrel in 1990 and to $28 per barrel in 1995. The average annual gross domestic product growth rate was assumed to be about 2.5 percent, with an energy-to-gross domestic product ratio of 0.5 percent. U.S. imports in 1995 would be about 8 million barrels per day under this scenario.

Variations of the lower price scenario were also examined. These were the "Price Ratchet" case and the "Price Collapse" case.

- The price ratchet case assumes prices would rise rapidly during the 1990s as a result of major producing countries exerting their renewed market power.

- The price collapse case assumes prices would fall again to $10 per barrel by mid-1987.

Lower prices of crude oil could encourage consumption through three paths: increased economic growth resulting from the lower oil prices would stimulate consumption of all goods and services, including oil. Consumers would have a greater incentive to use oil rather than an alternative source of fuel. Consumers' incentive to conserve oil would also be reduced.

Total free world consumption is expected to rise at an average annual rate of 0.6 percent to 1.3 percent between 1985 and 1995, the study said.

Free world consumption is projected to increase to 49.1 million barrels per day in 1995 from 46.4 million barrels per day in 1985 following the higher price case, or to 53 million barrels per day in 1995 following the lower price case, the study reported.

Following the lower price scenario, U.S. oil consumption would rise slightly, growing at a rate between 0.4 and 1.2 percent annually - rising to between 16.4 million and 17.7 million barrels per day in 1995 from 15.7 million barrels per day in 1985. In the higher price scenario, U.S. oil consumption would hold fairly steady, the study said.

"Most of this rather modest growth is expected in the transportation sector," the report stated. "But growth also is expected in industry and among electric utilities - particularly in the mid-1990s, after most of the coal and nuclear power plants now under construction have been completed."

U.S. oil production, the study reported, is projected to decline to approximately 8 million barrels to 9 million barrels per day in 1995 from more than 11 million barrels per day in 1985.

The cost of finding and producing oil in the United States is higher than in any other major producing country. …

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