The decline in oil prices in 1998 - Economic and political factors - Oil prices, the power of the market and politics

The article discusses the factors behind the 1998 oil price decline. The ar gument is briefly that rising oil supplies were more important than the wea k demand in making oil prices collapse. Oil prices (Brent spot) have fallen by ca. 50 per cent from January to December 1998, from $ 20/bl. to $ 10/bl . The price decline shows the extreme sensitivity of the oil market to chan ges, real or perceived, in the balance between supply and demand. Oil deman d suffered from the economic recession in East Asia as well as from an unus ually mild winter in North America, Europe and Japan. Nevertheless, oil dem and continued to grow in 1998, although at a slower pace than expected. Pol itics boosted oil supplies. OPEC wanted a larger share of the oil market. M ost probably, Saudi Arabia wanted both larger volumes and lower oil prices, but the price collapse overshot. There was strife between Saudi Arabia and Venezuela over shares in the US market. Iraq returned with a sizeable expo rt volume, without any OPEC bargaining thanks to the United Nations and ind irectly the United States. The deal with the UN meant that Iraq's oil sales were determined by revenue targets, so that Iraq's export volumes and mark et share increased as a function of declining oil prices, removing any pric e risk from Iraq's oil policy.