(FORTUNE Magazine) – - The free fall in oil prices continued to bring anguish to people in the business and joy to just about everybody else. London's spot market for North Sea oil screeched to a halt when several trading companies reneged on delivery contracts. The crisis was touched off when Switzerland's Gatoil S.A. charged traders with defaulting on deals worth some $75 million. The revelation rocked a volatile market already reeling from the deep drop in oil prices and the huge growth in trading volume that followed. Several trading houses were rumored to be near default, and some 200 deals were being disputed. Elsewhere, Mexico slashed an average of $5 a barrel from the price of its crude in an effort to keep its customers and protect its shrinking oil revenues. Major U.S. oil companies announced big reductions in their 1986 capital spending budgets; Arco said it would cut $1 billion, Tenneco $400 million. Outside the oil patch, rosy predictions came in bunches. The Administration, ridiculed barely a month ago for predicting 4% growth in the GNP this year, wondered aloud if the forecast wasn't too pessimistic. Wharton Econometrics estimated that a drop in oil prices to $18 a barrel would cut a full percentage point from the anticipated rise in the consumer price index. The stock market continued its climb, with the Dow nosing above 1700 for the first time. Economists even began to see hope for reducing the federal budget deficit. Wharton reckons that an oil price of $18 a barrel will add $16 billion to government revenues this year. FORTUNE is raising its growth forecast but cautions against overoptimism (see The Economy).

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