We have witnessed a major shift in inventories from very low levels in 1996 to adequate in 1997 and to excessive levels in 1998.
Inventories remain very high today.
Following delays throughout 1996, the UN and Iraq finally agreed on a plan of limited oil sales for humanitarian purposes and oil exports began in December of 1996. Those factors contributed to the replenishment of inventories to normal levels at the end of 1997 from very low levels in the beginning of 1997. As we headed into 1998, there were clear signs that inventories would become excessive. And yet OPEC agreed to increase production when it met in November of 1997 resulting in higher output by Saudi Arabia, Kuwait and the United Arab Emirates in the beginning of 1998. In the meantime, the economic slowdown in the Far East and another unusually mild winter lowered the growth in oil demand substantially in 1998.