(FORTUNE Magazine) – A NEW ERA of relatively cheap oil has begun. Prices of crude on the spot market fell more than 50% between November and February, dropping below $15 a barrel in New York. Futures contracts for delivery in March traded for less than $14 a barrel. Spot prices are likely to sink even lower, possibly to just $10 or $12 a barrel, for a while. Longer term, look for prices in the high teens. In inflation-adjusted terms, the price of crude is only twice what it was before the first oil shock in 1973 and almost 25% lower than in 1978, the year before the Iranian revolution. Chicago motorists have recently been able to find regular leaded gasoline at just over $1 a gallon -- cheaper, in inflation-adjusted terms, than in freewheeling 1963. OPEC countries have pared production slightly from the December flood that sent prices tumbling, but they still are pumping one million barrels a day more than they were a year ago. And no major non-OPEC oil producer has cut output. All that oil is pouring into a market in which demand is weakening. Mild weather in the U.S. and Europe has depressed sales of heating oil, and inventories have been piling up. Stocks of crude also are on the high side. Industry analysts expect refiners to cut product runs soon and sell off inventories in anticipation of lower prices. That will curb crude purchases for the rest of the winter. As the heating season winds down at the end of March, final demand for oil products worldwide will drop by three million barrels a day, or more than 6%. Since producers show no sign of cutting back that much, a growing crude glut should push prices lower still. If no oil producers were to cut output significantly, prices could stay around $10 a barrel or so for several years. That is the range at which most experts think demand and supply would move into balance without restraints on output. ''There are no automatic brakes above $10,'' says Philip Dodge, oil industry analyst at the brokerage firm of Donaldson Lufkin & Jenrette. But it is more likely that spot prices will rebound to $18 a barrel or slightly higher this summer. A brief dose of $10 oil should be sufficient to persuade oil countries to cut production. Some signs of compromise among producing nations are already apparent. Libya and Iran have been lobbying for an emergency OPEC meeting to discuss a return to the production quotas that disintegrated last year. Saudi Arabia, which started the price break by opening its spigots last fall, recently announced that it was cutting output slightly, to less than four million barrels a day. And Venezuela has lined up a handful of non-OPEC countries, including China, that it says are ready to consider an arrangement to restrain output. Revivifying the oil cartel should be easier in the summer, when vacationing motorists will push up demand. The drop in prices that has already occurred should boost economic growth and give another modest lift to oil consumption. And some utilities and factories will substitute oil for coal and natural gas. Data Resources Inc., an economic forecasting company, estimates that fuel switching and less assiduous conservation are likely to add a quarter of a million barrels a day to worldwide oil demand. Since inventories are likely to be lean by the time demand picks up, a scramble by refiners to restock should push spot prices back up. Prices could go as high as the low 20s for a while before settling back to $18 or so. The average prices that refiners pay for crude oil won't follow spot prices to their lows, and they won't surge in the summer either. Refiners buy most of their oil under contracts at prices that adjust gradually, so average prices lag behind spot prices by a month or two and are far less volatile. The * Petroleum Industry Research Foundation estimates that the average cost to refiners has fallen 27% since November, to $19.50 a barrel. FORTUNE expects the average refiners' cost to decline to $18 and then hold steady. Consumers are already seeing the impact of cheaper crude oil in heating bills. Rudolf Wolff Futures, a commodities brokerage firm, estimates that the price of heating oil has dropped by 20 cents a gallon since Thanksgiving. By the end of March heating oil should cost 80 cents a gallon. But the price of gasoline at the pump has not come down nearly as fast as the price at the refinery gate. The Lundberg Survey, which tracks pump prices around the country, reports that the average price for a gallon of leaded regular gasoline dropped just 6 cents, from $1.09 to $1.03, between December and February. The reason: retail profit margins swelled from 11.8 cents a gallon in December to 16.7 cents. But competition will keep dealers from enjoying such heady margins for long. Gasoline prices should fall at least another 13 cents, to 90 cents or so, by summer.

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