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.