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Abstract:
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In this OPEC crisis or the next, oil prices may fall to the
competitive floor. At the high-cost end of the spectrum, it would
take a price as low as $4 to produce an immediate shutdown of nearly
half of capacity in the United States, and as low as $2 to do the
same in the North Sea. A price of $10 would stop development
investment for the bulk of U.S. oil and over a third of North Sea
oil. Capacity would therefore decline by roughly 6 percent per year.
At the low-cost end, assuming continued competition and completely
independent decision-making, a price of $5 would make it profitable
for the OPEC nations to expand output to about 60 million barrels
daily. This price would be sustainable past 1995. This projection
is not a forecast, however. |
