Abstract
The petroleum industry is being challenged by price volatility and substantially reduced cash flow. In recent years, the decline in worldwide oil demand coupled with rising non-OPEC production has resulted in considerable excess productive capacity in the hands of OPEC. If OPEC fails to adhere to production restraint, world oil prices could tumble toward their short-term economic floor of less than $10. It appears more likely, however, that OPEC will manage its surplus capacity reasonably well and prices will fluctuate around the upper teen level for the near term. As the supply and demand balance tightens in the 1990s, prices can be expected to move up significantly.
Free-world oil demand is expected to rise about 1% a year, with much of that growth in the developing nations and in the United States. Oil supply from sources outside OPEC will likely decline about 2% a year. The net result will be an expanded market for OPEC oil, and a rising world dependence on Middle East sources.
In this environment, companies need responsive strategies and reasonable government policies to preserve their viability and to provide an energy-secure future for consumers.
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