Technical factors rather than underlying trends set the pattern for oil prices in the second week of May as the market tried to digest mixed signals about economic developments in leading industrial countries.

The price of dated Brent blend crude dropped below $16 a barrel on 17 May mainly on profit-taking rather than demand and supply fundamentals. This was the first significant fall in the market for seven weeks. World crude oil prices rose by 25 per cent between the end of March and 13 May.

The rise in the market is due to a combination of OPEC production restraint and a revival in investor interest in buying crude oil, analysts say. The Centre for Global Energy Studies (CGES) said in a report released on 13 May that OPEC production restraint has helped cut Western oil stocks to their lowest level for more than 10 years.

The CGES also reported that most spare production capacity is now controlled by Saudi Arabia, Kuwait, Abu Dhabi and Venezuela. It forecast that OPEC capacity at the end of 1994 will be 28.77 million b/d. This is 4 million b/d more than average output of 24.77 million b/d in April this year. Saudi Arabia accounts for 1.6 million b/d of the surplus capacity.