Analysts predict oil firm till year-end

Analysts predict oil firm till year-end

SINGAPORE (Reuters): Crude oil prices, already double levels seen a year ago, are set to remain firm for the rest of the year, analysts said on Wednesday.

They said OPEC's commitment to agreed production cuts, shrinking global oil stocks, and peak northern hemisphere demand, combined to ensure that prices end the millennium on a high note.

For Asia, the expected high prices were a much needed tonic for beleaguered producers such as Indonesia, Malaysia and Vietnam but was a burden for oil importers Thailand, South Korea and the Philippines, seeking to get their economies firmly on the recovery path.

"It's quite likely we could see oil prices strengthen from where they are now into the fourth quarter," said James Brown, regional energy analyst at Merrill Lynch.

"But not significantly higher, maybe US$1 per barrel at the most," he said.

U.S. benchmark crude futures in New York soared over 70 cents per barrel on Tuesday and at its current level of $24.28, was 135 percent above the $10.35 traded in December 1998.

Non-OPEC member Malaysia, in its annual economic report, said the weighted average price of its domestic crudes rose to $17 per barrel this year from $14.19 in 1998.

It forecast the average price would rise to $18.50 in 2000.

Malaysia said that while its oil output next year was expected to fall to the lowest level in five years, firmer prices would boost its 2000 oil export earnings to 9.24 billion ringgit ($2.43 billion), from an estimated 8.75 billion this year.

Indonesia, the only Asian member of OPEC, was also seen benefiting from stronger prices, as oil and gas were the country's largest export earners.

The official selling price of Indonesian crudes, set monthly by state oil firm Pertamina, had risen steadily in the last year, in line with firmer crude futures in London and New York.

Pertamina set Indonesian crude prices for October at its highest level since January 1997.

The latest crude rally was expected to push price-sensitive retailers in Asia to raise pump prices soon and could lead to increases in electricity tariffs as well, analysts said.

In Thailand, for example, soaring gasoline and diesel became a political hot potato in September as it looked at various ways of reducing the impact of higher costs on the economy.

Going into 2000, analysts were less bullish about the market, predicting prices could slip as OPEC and non-OPEC supplies rise.

"The cracks are very tiny but beginning to show," said a U.S. analyst in Singapore who declined to be named.

He was referring to OPEC's compliance to output cuts, which had remained above 80 percent most of the year.

While OPEC had vowed to maintain the cuts to March 2000 and probably beyond, doubts persisted.

New fields coming onstream in the North Sea and higher West African production early next year could pressure OPEC to raise output to maintain its market share, analysts said.

"During the latter part of the fourth quarter or in the first quarter next year, we'll very likely see some form of production increase by OPEC, which they will have to do to arrest declining inventories," Merrill Lynch's Brown said.