MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JUNE 23, 1998 (3)
OIL & GAS
OPEC Ministers May Cut 1 Million Barrels From Weak Oil Market
VIENNA, Austria (AP) -- OPEC ministers clamored Tuesday to make a new round of oil production cuts even deeper than what has already been promised, and two key players said more than one million barrels a day should be removed from the glutted market.
Cuts that big would be almost double what six of the OPEC members have pledged, as the ministers struggle to lift prices from 12-year lows.
Heading into a meeting that formally opens today, the ministers gave no details about how much any particular producer should take off the market, but oil traders liked the basic idea and responded by pushing prices higher in New York and London.
"The price has reached a very low level. We need a drastic decision," said Libyan oil minister Abdalla Salem el-Badri, adding his name to the list of ministers who say they will restrain production. "We need a shock, not a shot."
Most of the OPEC members already have pledged new cuts that would equal 620,000 barrels a day, beginning July 1. Non-OPEC members including Mexico, Russia and Oman have chipped in to raise the pledge to 823,000 barrels.
Kuwaiti oil minister Sheik Saud Nasser al-Sabah said he would like to see OPEC agree this week to cut more than 1.245 million barrels a day, citing the same figure that OPEC promised to slash in an emergency session called in March to address the collapsing market.
"We're all discussing further cuts," Sheik Saud said after talking privately with Saudi oil minister Ali Naimi.
But it remains to be seen whether OPEC can pull off big new cuts. OPEC actually delivered less than one million barrels a day of its first round of cuts, and prices plunged further. OPEC's average price fell below $11 US a barrel last week, though it is slightly higher now.
"It's a question of 'How much and will they deliver?"' said Leo Drollas, chief economist at the London-based Centre for Global Energy Studies.
OPEC secretary-general Rilwanu Lukman of Nigeria acknowledged Tuesday that some OPEC producers may need to cut more than they have thus far pledged, but he would not elaborate.
"You're jumping the gun," Lukman told a news conference. "They haven't even had time to discuss the matter."
As OPEC ponders its decision, all eyes will be on Saudi Arabia.
The Saudis, OPEC's biggest producer, have indicated they would consider slashing their massive output by more than the 225,000 barrels a day theyalready pledged, according to a Persian Gulf source who spoke only on condition of anonymity.
Although the Saudis are cutting by far the most barrels, they have by far the biggest production and their initial pledge to restrain output was proportionately smaller than promises from some of the other OPEC states.
OPEC got itself into trouble in the winter by agreeing to raise production, flooding the market with crude just as the Asian economic crisis began choking off demand.
The cheap oil is a bargain for consumers but awful news for OPEC and other producers who think they should be getting somewhere between $17 US and $20 US a barrel.
OPEC and the other producers know they're in trouble, and many are talking about more severe cuts.
Among the OPEC producers who have not yet specified any offers to cut production, Libya stated Tuesday night it would reduce output, but el-Badri would not give any figures. Nigeria and Algeria hinted they would announce cuts later.
"Personally, I think we need 1.3 million barrels a day," said Luis Giusti, the president of Venezuela's state oil monopoly, Petroleos de Venezuela SA. Giusti was referring to cuts from OPEC and non-OPEC countries.
Brent crude oil to be delivered in August rose 68 cents to close at $13.92 US a barrel on London's International Petroleum Exchange. Light sweet crude for August delivery rose 87 cents to $14.52 a barrel on the New York Mercantile Exchange.
Members of the Organization of the Petroleum Exporting Countries are
Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
OPEC Considering Oil Cuts
VIENNA, Austria (AP) -- OPEC ministers managed to push oil futures higher by talking about some serious cuts in output. Now, it remains to be seen whether they can deliver and keep oil prices from retreating again.
Oil exporters were forced into action after prices plunged to 12-year lows. OPEC opens its summer meeting today with some ministers saying they need to cut production by 1 million barrels a day or more.
That's about twice what has been pledged thus far, but OPEC members realize their oil-dependent economies are in deep trouble if they can't find a way to get more money for their crude.
''The price has reached a very low level. We need a drastic decision,'' said Libyan oil minister Abdalla Salem el-Badri, adding his name to the list of ministers vowing to show restraint. ''We need a shock, not a shot.''
Futures traders were encouraged as minister after minister made bold predictions Tuesday about cutting more production, and oil prices climbed in London and New York.
Brent crude oil to be delivered in August rose 68 cents to close at $13.92 per barrel on London's International Petroleum Exchange. Light sweet crude oil for August was up 87 cents at $14.52 per barrel around midday on the New York Mercantile Exchange.
The prospect of more expensive oil shook New York stock prices as well, with Big Oil's shares rising and transportation companies, such as airlines, falling on fears they will stop enjoying such a big break on their fuel bills.
Crude oil is the world's most vital commodity and the recent cheap prices have been a bargain for consumers but a nightmare for OPEC and other producers.
OPEC found itself in a mess this winter after boosting output just as the Asian economic crisis started eroding the growth in world oil demand.
The oil ministers held an emergency meeting in March, agreeing to cut 1.245 million barrels of daily production. They delivered most, but not all, of those cuts and prices plunged further.
Six of the 11 OPEC members have now pledged a second round of cuts totaling 620,000 barrels a day -- and at least two ministers say they're shooting for a target of more than 1 million barrels.
Libya became the seventh OPEC member to say it will cut production, although it would not say by how much. Two more stragglers, Algeria and Nigeria, hinted they soon will announce their own cuts.
The big producers from the Persian Gulf -- Saudi Arabia, Iran, Kuwait and the United Arab Emirates -- all seem willing to slash output further than already promised.
''The market needs another cut. Everybody should admit it,'' said Abdulla bin Hamad al-Attiyah, the oil minister of tiny Gulf state Qatar.
OPEC got a helping hand from non-OPEC members Mexico, Russia, Oman and Egypt, who say they will withhold another 203,000 barrels from the market.
After the futures prices rose, extending gains that began on Monday, some analysts cautioned that OPEC still needs to deliver more than words. The once-powerful cartel has in recent years shown a marked inability to stick by its production agreements.
''It's a question of 'How much and will they deliver?''' said Leo Drollas, chief economist at the London-based Center for Global Energy Studies.
Members of the Organization of the Petroleum Exporting Countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
OPEC Plans Bold Oil Cut To Raise Prices
VIENNA, June 23 - Oil cartel OPEC signalled doubting markets on Tuesday it was ready to drain swollen supply by more than expected to pull prices higher.
Gulf sources said the cartel's dominant force, Saudi Arabia, would contemplate output cuts beyond those it had already pledged provided others made promised sacrifices.
''I think there should be an adequate cut to reverse the trend in the markets,'' said OPEC President and United Arab Emirates Petroleum and Mineral Resources Minister Obaid bin Saif al-Nasseri.
Any significant extra cuts would take Saudi Arabia close to the eight million barrels per day (bpd) level it held for six years after the 1990-91 Gulf crisis.
That would send a strong signal of the kingdom's intent to reverse a decline in prices set in motion when it led a 10 percent rise in the group's output limits late last year.
Oil prices rose when OPEC delegates said Saudi Arabia had taken the initiative in securing the extra reductions.
''800,000 barrels per day is short -- if you look at the market fundamentals you should probably be aiming at 1-1.3 million barrels per day,'' a non-Saudi delegate said.
Another proponent of extra reductions, Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah, said he expected fresh OPEC production cuts to match the 1.245 million bpd the cartel earlier pledged to siphon from the market from April 1.
Delegates said the tricky question of compliance with output cuts could yet frustrate attempts by Wednesday's gathering of the 11-country group to lift depressed prices.
They said OPEC's number two producer Iran was a focus of concern because it recently reported hefty output in a move widely seen as a bid to minimise future supply sacrifices.
Iran's Foreign Minister Kamal Kharrazi was in Saudi Arabia for talks with Crown Prince Abdullah and Foreign Minister Prince Saud al-Faisal on the oil price slide.
Prince Abdullah underlined the need for the two countries to broaden cooperation on controlling the oil market ''crisis,'' the official Iranian News Agency said.
Iran has circulated among some fellow OPEC members a proposal that the group extend its output cuts to a full 10 percent from a benchmark of production earlier in the year, a Venezuelan delegate said.
The delegate was not able to say whether the idea had drawn any support. A Kuwaiti delegate said his colleagues had received no such proposal from Iran.
Saudi Arabia is likely to strongly resist Iran's idea because it would take Riyadh 130,000 bpd below its cherished eight million supply.
Oil prices traded sharply higher as dealers revised their expectations of OPEC's ability to slice oversupply. Brent crude ended 68 cents stronger at $13.94 a barrel in London.
''I would like to see $18-20 a barrel,'' said Qatari Oil Minister Abdullah al-Attiyah. ''Any decision that OPEC has reached we will support it.''
The price slide has chopped OPEC oil revenues by a third and pressured national budgets already pared to the bone.
Another challenge to the latest planned sacrifices comes from perceptions on oil market trading floors.
Traders say the more OPEC says it should cut, the more the market will be dismayed if it does not match its words.
''The OPEC spin is positive, but I'll believe it when I see it,'' said Tom Benz of Cresvale International in the United States.
''A million is on the cards and 1.3 milliion would be mildly impressive,'' said Nigel Saperia of Bankers Trust.
And Venezuela's Erwin Arrieta warned the market would not recover no matter what was said at the gathering if producers continued to pump in excess of demand.
Prices fell to a 10-year low in March after an OPEC decision last year to hike output limits just as Asian demand began to falter.
Asia's financial crisis means producers can no longer rely on any incremental demand from the region which in recent years has accounted for about half the globe's extra oil consumption.
Ministers are due to assemble in a formal plenary session for the first time on Wednesday. In a preparatory step, OPEC's market monitoring committee met for almost two hours to study the extent of oversupply, breaking up without comment.
After Wowing Markets by Promising Less Oil, Can OPEC Deliver?
VIENNA, Austria (AP) OPEC ministers managed to push oil futures higher by talking about some serious cuts in output. It remains to be seen whether they can deliver.
Oil exporters were forced to act after prices plunged to 12-year lows. OPEC opens its summer meeting today with some ministers saying they need to cut production by 1 million barrels a day or more from the oil cartel's 28 million barrels per day of total production.
That's about twice what has been pledged but OPEC members realize their oil-dependent economies are in deep trouble if they can't find a way to get more money for their crude.
"The price has reached a very low level. We need a drastic decision," Libyan oil minister Abdalla Salem el-Badri said Tuesday, vowing to show restraint. "We need a shock, not a shot."
Futures traders were encouraged as minister after minister made bold predictions Tuesday about cutting more production, and oil prices climbed in London and New York.
Brent crude oil to be delivered in August rose 68 cents to close at $13.92 per barrel on London's International Petroleum Exchange. Light sweet crude oil for August was up 87 cents at $14.52 per barrel on the New York Mercantile Exchange.
Crude oil is the world's most vital commodity and the recent cheap prices have been a bargain for consumers but a nightmare for producers.
Oil ministers held an emergency meeting in March, agreeing to cut 1.245 million barrels of daily production. They delivered on most of those cuts, but prices kept falling.
Six of the 11 OPEC members have pledged a second round of cuts totaling 620,000 barrels a day, and at least two ministers say they're shooting for a target of more than 1 million barrels.
Libya became the seventh OPEC member to say it will cut production, although it would not say by how much. Algeria and Nigeria hinted they soon will announce cuts, too.
The big Persian Gulf producers Saudi Arabia, Iran, Kuwait and the United Arab Emirates all seem willing to further slash output.
After the futures prices rose, extending gains that began on Monday, some analysts cautioned that OPEC still needs to deliver more than words. The once-powerful cartel in recent years has shown a marked inability to stick by its production agreements.
"It's a question of 'How much and will they deliver?"' said Leo Drollas, chief economist at the London-based Center for Global Energy Studies.
Members of the Organization of the Petroleum Exporting Countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
OPEC Meets to Chart Bold Cuts, Save Prices
VIENNA, June 23 - Oil cartel OPEC meets on Wednesday to examine strategy for hefty production cuts to shore up weak prices and bolster ailing petrodollar revenues.
The petroleum club's summer conference looked likely to discuss reductions beyond those contemplated in recent weeks to rescue prices sagging near 10-year lows, delegates said.
But prospects for an unusually large cut receded with an Iranian denial that it had proposed the Organisation of the Petroleum Exporting Countries extend oil output cuts to 10 percent.
"That is not my proposal," Iranian Oil Minister Bijan Zanganeh told Reuters. "I have not said anything about a 10 percent cut. We have some suggestions but we don't want to announce it now."
Key to how much extra OPEC could cut is how far cartel kingpin Saudi Arabia is prepared to lower its production towards the prized eight million barrels per day (bpd) level it held for six years after the 1990-91 Gulf crisis.
Ministers were due to gather informally in a hotel suite in late morning to exchange ideas on sacrifices ranging somewhere around one million bpd, above the 800,000 bpd or three percent of OPEC output floated by delegates in recent days.
The gathering is likely to discuss an OPEC committee's view that the group March.
That would require OPEC to withdraw another one million bpd, or more than one percent of global demand, from soggy markets from July 1.
The only country to come up publicly with a firm number publicly for the latest round of cuts has been Kuwait, which has proposed slicing another 1.245 million bpd.
Any significant extra cuts would take Saudi Arabia, the world's largest producer and exporter, closer to the eight million bpd level.
That would send a strong signal of the kingdom's intent to reverse a decline in prices set in motion when it led a 10 percent rise in the group's output limits late last year.
Delegates had earlier said Iran had proposed extending reductions to 10 percent or a total 2.7 million bpd, in effect requiring another 1.5 million bpd of reductions to be agreed this week.
Delegates said Saudi Arabia, while supporting the concept of reductions, would not support any plan for a cut of percentage magnitude. But they said Saudi Arabia might still be willing to cut close to its longstanding eight million bpd.
The kingdom's output would be capped at 8.223 million bpd under proposed cuts agreed with Venezuela and Mexico in Amsterdam earlier this month that would result in total OPEC reductions of 800,000 bpd.
One pointer to the urgency of the cuts was the priority given to oil in Riyadh talks between Iranian Foreign Minister Kamal Kharrazi and Saudi Arabia's King Fahd this week.
"King Fahd expressed the hope that ... Tehran-Riyadh cooperation within the Organisation of the Petroleum Exporting Countries will help bring oil prices to a desirable level," the Iranian News Agency said.
Delegates said it was likely the group might well not hold the conference's formal plenary session until Thursday.
Prices slumped to their their lowest in 15 years in real terms in March after an OPEC decision last year to hike output limits just as Asian demand began to falter.
Subsequent agreement in March to cut 1.245 million bpd has failed to prevent a further price slide in recent weeks.
Oil prices ralled higher on Tuesday on the talk of production cuts. Brent crude on Wednesday rose a further 10 cents to $14.00 a barrel in London. |
