Long-Term Outlook for World Energy Market, Primarily Crude Oil Market

Abstract Having come through the first and the second oil crises, the world oil market today has become fairly bearish. Most observers agree that the market will remain weak for some time. Regarding the long-term outlook for energy supply and demand for crude oil prices, on the other hand, there are two views prevailing in the market. One is the conventional view that foresees a rapid increase in crude oil prices again in the 1990s, while the other view -- frequently referred to as the “new conventional wisdom” -- foresees continued bearishness in crude oil prices on a long-term basis. The latter view has recently been winning fairly wide support in the industry. Especially among the major oil compnies, although the backgrounds for that view are not necessarily clear. In this report the world oil market is analyzed to find out where the difference between these two views arises. This is done by building up a medium-scale world energy supply and demand forecasting model. The analysis reveals that the new conventional wisdom presupposes considerable restructuring of the existing oil market mechanism, but that if such restructuring fails to take place crude oil prices are bound to continue rising in the future, reaching around $30/bbl by 2000. Furthermore, the free world’s reliance on the Middle East for oil supply is expected to rise in either case.