Economic Report 2000 Index

Next Section

Industry Activity in 2000 Oil Markets The recovery in oil prices, which started in the second quarter 1999, has been maintained in 2000 as shown in Figure 7. Having sunk to below $10/bbl at the end of 1998 both supply and demand factors have worked to raise the oil price into the $20-35/bbl range during 2000. However, at the end of 2000 oil prices fell sharply to near $24/bbl. An early test of OPEC discipline is likely in 2001 as quota reductions will be necessary if OPEC is to achieve its ambition of sustaining prices in the $22-$28/bbl price band. The average oil price in 2000 was $28/bbl, which is less than half the real price in 1980. On the supply side, the production discipline of the OPEC has held. OPEC ministers have monitored the developing situation and have sought to control supplies, announcing increases and decreases in production to try and maintain prices. Growth in oil supplies from non-OPEC countries has not been sufficient to have a marked impact on the market. The UK is a net exporter of oil and produces some 2.5 million barrels of oil per day of which some 30% is exported. In 1999 the UK was the ninth largest oil producer representing some 4% of world production. On the demand side, economic growth throughout the developed and developing economies, particularly in South East Asia, has continued to strengthen, having recovered from its collapse in 1997. The UK consumes some 1.8 million barrels of oil per day, or about 3% of world consumption. The fundamentals still suggest that the outlook for oil prices in the medium to long term is soft, as world oil supplies are artificially constrained and more non-OPEC supplies are scheduled to come onstream e.g. in Angola, Russia and Central Asia. Figure 7 - Brent oil price 1982-2000