Slowdown in oil supply too late to save 1999 price
Slowdown in oil supply too late to save 1999 price
LONDON (Reuters): A slowdown in oil supply growth is not
coming fast enough to prevent an even deeper price crisis for oil
producers this year, a Reuters poll of industry experts found on
Tuesday.
Asian economies are too depressed to siphon off a stubborn
global stock glut and suffering producers will have to cut more
output just to get prices back to last year's sunken level, the
pundits said.
A survey of 20 top analysts forecast an average of just $12.61
a barrel for international benchmark Brent this year -- even less
than last year's 22-year low of $13.34.
The latest outlook is a downward revision of nearly a dollar
from a similar survey in December after Brent's brief January
rally above $12 has quickly tailed off.
Mild winter temperatures have now switched the spotlight back
on export cartel OPEC, whose November failure to further its 2.6
million barrels per day (bpd) output cut package condemned Brent
to single digits for the first time in 12 years.
"Our $13 prediction is based on an assumption that OPEC will
some time this year cut actual production by up to another
million bpd," said Mike Barry of London's Energy Market
Consultants.
"They've got to enforce the existing agreement in full and cut
another 500,000 bpd. If they don't prices are heading even
lower."
Almost all agreed that OPEC will have to cut again at some
point in 1999 as the social impact deepens from their shrunken
oil revenues.
But any new cut at the group's March 23 meeting will hinge on
resolving Saudi-led disaffection with Venezuela and Iran over
their poor compliance with existing curbs.
Iran's dispute over its production allocation can only be
resolved by Iranian President Mohammad Khatami's March visit to
Saudi Arabia.
And while new Venezuelan President Hugo Chavez' instincts lead
him towards further cuts, many expect him to yield to pressure to
open the taps.
Industry consultants were more pessimistic than banks about
the chances of a price pick-up, forecasting on average $11.87 for
this year.
Yet OPEC may find some comfort as the price crash closes
unprofitable output, in the North Sea and especially the United
States and Canada.
"The fact is that $10 oil is just not sustainable for a long
period of time," said Mehdi Varzi of Dresdner Kleinwort Benson
bank. We're aleady seeing supply growth curtailed and the number
of rigs actually in operation has virtually halved."
Most analysts now expect a trifling 100,000 bpd of supply
growth outside OPEC this year, less even than a 200,000 bpd gain
in 1998.
But it will take at least another year for swingeing budget
cuts now being made by oil firms to take their full toll on
swollen crude supply.
In the meantime demand growth is not strong enough to drain
the mass of spare oil in world storage tanks.
Asia -- before last year the engine for almost all oil market
growth -- is showing only the first shoots of a recovery, with
economists particularly downbeat about demand in regional giants
Japan and China.
A further downturn in Brazil would tarnish demand prospects
still further. Philip Verleger of PKV Associates cautions that
prices could average well below $10 in the notoriously weak
second quarter.
Much again rests on Iraq, whose 700,000 bpd increase in
exports over the course of last year wrecked the cutback efforts
of its OPEC fellows.
All-out conflict could yet cut Iraqi exports altogether and
send prices skyward at a stroke. But Washington's increased
cooperation with a $300 million U.N. repair program is more
likely to swell Iraqi exports still further this year.