All the forecasts on the energy industry vis-a-vis the Middle
East oil crisis will have a new dimension this time next week.
The United Nations deadline for Iraq to withdraw from Kuwait is
Nearly all the energy sages look at three scenarios ranging from
a quick resolution to a protracted stalemate to a shooting war with
timeframes ranging from six months to more than two years. Time is
nearly up for the six-month scenario, though.
Regardless of the outcome of the Middle East crisis that began
Aug. 2, there are other factors in the United States that are
drastically affecting the energy industry, too. Environmental
regulations top the list, and the general economic climate will be a
Given any scenario of Mideast events, all aspects of the U.S.
energy industry - petroleum demand and supply, capital expenditures,
drilling indicators, natural gas demand and supply, coal demand and
nuclear demand to a lesser degree - are predicted to rise through
1995 by one forecast.
That forecast is the "Oil Industry Outlook" for 1991-1995
written by Robert J. Beck, economics editor for the Oil & Gas
Journal. The annual report was prepared in the early days following
eruption of tensions in the Middle East and was published in
November. It was released late last week.
"The worldwide and United States oil and gas industries have
been shaped and reshaped by changing political and economic events.
This is particularly true this year," Beck wrote in the introduction.
"Because of the current crisis in the Middle East, the industry
is almost being forced to predict future political events."
The report, he said, is an attempt to help the industry evaluate
historical and current events plus various possible effects the
Middle East crisis will have on the future business climate in order
to proceed most successfully.
"In order to operate profitably in the future, it is essential
that companies develop a strategy for adapting to the changes
occurring in the industry and a strategy for operating under the new
conditions in the industry. The strategy that worked in the 1970s
and 1980s will not necessarily work in the 1990s," Beck said.
"The future may be filled with a great deal of uncertainty, but
it is also filled with exciting opportunities."
Beck studied three scenarios:
- Scenario I - an extended embargo of oil from Iraq and Kuwait
for six to 18 months.
- Scenario II - a protracted embargo of 18-30 months.
- Scenario III - a short embargo of less than six months.
Once the conflict is resolved, at any point, he assumes Iraqi
and Kuwaiti oil production is resumed at previous levels.
Oil prices are generally projected to rise during the period.
Under the first scenario, Beck predicts oil prices would rise
about 12.6 percent over the five-year period, cresting in 1991
before slumping in 1992 and beginning a steady climb through 1995.
Higher oil prices would be sustained through 1992 under the second
scenario, but fall lower than under the first scenario and average a
9.6 percent increase through the period. Oil prices would dip
slightly in 1991 but gradually climb 18.6 percent over the five
years under the final scenario.
Economic expansion is projected throughout the forecast period.
The degree of economic growth will impact energy demand, Beck
noted, but energy costs will have the greatest effect on both
economic growth and demand. All those factors are interrelated and
"What should be kept in mind is that demand for energy and
petroleum products is very dependent upon the level of economic
activity and will tend to follow the trends in economic growth," he
"Two of the major problems in the U.S. are the budget deficit
and huge negative international trade balance. …