MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, FEBRUARY 12, 1998 (4)
FEATURE STORY
Oil Prices To Dilute?
Low Demand Pushes Quotes Down Despite Possible Strike On Iraq
London - Reuters
Sickly world oil markets are likely to take a turn for the worse in the weeks to come even in the event of a U.S. attack on Iraq, oil traders and analysts said Wednesday.
They said that only a lengthy disruption to U.N.-monitored Iraqi oil sales can provide a tonic to a glutted market where inventories are growing by the day.
"Any rally is an opportunity to sell," said Russell Hill at Austrian OMV. "This market could be heading for $12 a barrel or lower."
Trading at $15 a barrel Wednesday, benchmark Brent blend crude has not been lower since the spring of 1994.
"I simply can't see light at the end of the tunnel," added Hill. "We're stocked to the buffers."
Traders increasingly seem to have discounted the impact on oil markets of a military strike by the United States against Iraq over weapons inspections.
Futures screens in London barely flickered on Wednesday when the commander of U.S. forces in the Middle East said he would be ready to strike Iraq within a week or so.
Some dealers remain concerned that a sustained U.S. attack might oblige the United Nations to remove from Iraq officials monitoring aid distribution and oil exports.
"Obviously there's a lot of uncertainty over the consequences [of military action], but if nothing happens to Iraqi oil installations, then it's really a question of how low do you go," said Leo Drollas at London's Center for Global Energy Studies.
"It's frightening to think that even at $15 there may still be a war premium in the price of oil," said Peter Gignoux, head of the energy desk at broker Smith Barney.
Iraq now is selling more than a million barrels a day under the oil-for-food exchange that the United Nations wants to expand.
Most analysts concede that, under current circumstances, oil markets this year would be lucky to build stocks by a million barrels daily.
"Even with a conservative estimate for Iraq, the most optimistic scenario I can come up with is a stockbuild of 1.2 million barrels a day," said one oil company analyst in London.
"It's not difficult see a lot more, but physically there would be no room to stock the stuff. Something would just have to give."
Rising supplies from the non-OPEC producers in Latin America, the North Sea and beyond, though hampered by a drilling bottleneck, are competing with extra oil from OPEC.
The Organization of Petroleum Exporting Countries, encouraged by the higher supply limits agreed to in December, broke above 28 million barrels a day (bpd) in January and, with Iraq at full stretch, is expected soon to approach 29 million bpd.
Giant OPEC producer Saudi Arabia has not yet quite met its new supply entitlement but Riyadh, impatient with others in the group who ignore quotas, has made it clear it will not make a lone attempt to prop up the market.
World demand for oil, meanwhile, has been stunted by Asia's financial crisis and a mild winter in the big consuming nations of the West.
The International Energy Agency (IEA), a thinktank, said Tuesday it expects supplies to exceed demand at least in the first half of the year.
It said global demand growth probably will be restricted to 2.3 percent, reaching 75.34 million bpd this year, putting an end to a four-year run of accelerating demand growth.
The IEA estimates world stocks grew by 800,000 bpd last year, capped by 600,000 bpd of stockbuild in the fourth quarter, when inventories normally are drawn down in preparation for winter.
Oil experts don't rule out prices spending a lengthy period in the bargain basement. Brent dipped briefly below $12 in 1994 but has not been in single digits since the mid-1980s.
Shell Chairman Mark Moody-Stuart warned an industry conference this week that, in the medium term, surplus capacity is increasing and might result in the biggest glut since the 1980s.
Roll Out The Barrels
Industry Backs Day's Oil Price Predictions
Glen Whelan Calgary Sun
Stockwell Day is bang-on in his oil price predictions and the effect they will have on the government's coffers, energy officials said following yesterday's budget.
Day called for oil and gas revenues to drop $1.1 billion due to weaker world commodity prices, with the annual average price of oil running at $17.50 US per barrel.
The price represents a drop of $1.62 from last year's forecast, but a significant rise over its present value.
West Texas Intermediate crude oil closed down 12 cents yesterday at $16.03 US.
Natural gas is expected to drop six cents on average to $1.70 per thousand cu. ft.
"Those prices would seem to be reasonable at this point in time," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
Gerry Doucet of the Canadian Gas Association agreed, citing El Nino, the financial crisis in Asia and an opening of the taps by OPEC as main causes for softer commodity prices. "But it's not a long-term problem," Doucet said. "When the bottleneck opens in takeaway capacity, exports will strengthen significantly."
A loss in royalties from the oilpatch is expected to drop overall revenues in 1998-99 to $15.2 billion, down 11% from last year.
"It's not something to lose sleep over," said Teresa
Courchene, senior economist with Toronto Dominion Bank.
"Alberta has the healthiest economy in the country ..."
|
