FWIW:
Some Fear Oil Shortage This Winter
LONDON, Jul 09, 1999 (AP Online via COMTEX) -- OPEC's cutback in crude
production and a rising demand for gasoline and other refined products
could lead this winter to the biggest oil shortage in more than a
decade, a respected industry survey warned Friday.
But the report by the International Energy Agency acknowledges that a
further spike in prices, which have almost doubled since December,
would probably tempt oil-producing countries to break ranks and boost
output.
''A more plausible scenario is that, before the end of the year, there
will be an 'upward adjustment' of production,'' the agency said.
Continued economic growth in the United States and the resurgence of
activity in Asia should help boost global demand for oil by 1.84
percent in the third quarter of the year and 2.38 percent in the fourth
quarter, according to the Paris-based agency. The IEA is part of the
Organization for Economic Cooperation and Development, a group of the
world's most developed nations.
It predicted slower growth in world oil supplies as a result of
OPEC's discipline so far in complying with output cuts agreed in March.
The result could be a shortfall of 1.61 million barrels a day in the
third quarter.
A shortfall of that magnitude is ''unusual,'' and if current trends
continue, it ''will trigger one of the biggest quarterly stock draws
(shortfalls) in history,'' the agency said.
Higher oil prices would push up the costs of almost all aspects of
daily life, from filling up at the pump to higher shipping costs for
groceries and merchandise. Rising inflation would push up interest
rates, which could cool off economic growth.
The fourth-quarter shortage could be as large as 3.24 million barrels
per day -- a level last seen during the exceptionally cold winter of
1987.
Barney Gray, an analyst at the brokerage Williams De Broe, dismissed
this forecast as a ''scare story.''
Members of the Organization of the Petroleum Exporting Countries, who
agreed in March to trim output by 4.32 million barrels per day, would
probably start cheating if prices rose much higher, Gray said.
''OPEC has been very disciplined since March, with very high
compliance. We want it to stay that way,'' he said.
The price for widely traded West Texas Intermediate crude has been
rallying strongly as evidence mounts of OPEC's unusual discipline in
production, climbing to 19-month highs this week and flirting with $20
a barrel. The gain in June alone was $2.97 per barrel, the agency
noted.
Contracts for August delivery of West Texas Intermediate were trading
at $19.93 a barrel Friday afternoon on the New York Mercantile
Exchange, almost twice the Dec. 11, 1998 low of $10.65.
The price of North Sea Brent crude increased last month by an even
heftier $3.24 per barrel. Brent contracts for August finished trading
Friday up 34 cents at $18.32 per barrel in London.
If prices rise beyond $20 per barrel, the temptation could become
intense for OPEC members to exceed the quotas of their latest accord,
said Mehdi Varzi, an analyst at the investment bank Dresdner Kleinwort
Benson.
Higher prices could also mean that non-OPEC exporters with higher
production costs will once again find it profitable to pump oil,
thereby increasing global supplies and dampening prices.
''It's not all blue sky for OPEC. There are dangers in allowing the
price to go too high,'' Varzi said.
OPEC's compliance rate with its targeted output levels was 91 percent
in June, up from 88 percent in May and 82 percent in April, the IEA
said.
Saudi Arabia and Iran, OPEC's biggest producers, cut daily production
last month by 40,000 barrels and 50,000 barrels respectively. Nigeria,
considered one of the group's weaker members in terms of compliance,
saw output fall by 30,000 barrels a day due to civil unrest in its
oil-rich coastal areas. |
