by Matthew R. Simmons
President
Simmons & Company International

On June 15, 1998, crude oil hit its lowest level in over a decade, closing at $11.40 per barrel. Only 18 months earlier, it was over $26.

Regardless of where crude prices go from here, the recent price collapse has already gone into the history books as the second most severe drop in the price of oil in 50 years. The 56 percent drop from the start of 1997 to mid-June 1998 still lags behind the 65 percent drop in 1986.

However, $11.40 oil in June 1998, when adjusted for inflation to 1986 prices, is just over $8 per barrel, 20 percent below the 1986 low.

There is a complete contradiction between these low prices, the consensus view on supply and demand, and the published actual supply and demand statistics. This article discusses the perceptions and the realities of the present oil market situation.

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