FOCUS-Oil falls sharply on OPEC cut scepticism
05:53 p.m Jun 24, 1998 Eastern
LONDON, June 24 (Reuters) - World oil prices fell sharply on Wednesday
in a surprise slide after OPEC clinched a deal cutting deeper into
supply than expected.
The cartel agreed to cut 1.355 million barrels per day (bpd),more than
doubling an earlier round of cartel reductions agreed in March, Kuwaiti
Oil Minister Sheik Saud Nassser al-Sabah told reporters.
He said the cuts would be for one year from July 1.
''I am extremely happy (with the agreement),'' said Saudi Oil Minister
Ali al-Naimi, in day-to-day charge of the world's biggest flow of
exports and production.
Many oil traders had been expecting cuts of anywhere between a million
and 1.3 million bpd to emerge from the cartel's meeting in Vienna.
Benchmark Brent crude last traded 31 cents down at $13.61 after striking
a session high of $14.56 earlier in the session. But prices slipped as
dealer scepticism surfaced on the ability of OPEC making prices stick.
Against this backdrop ministers began meeting mid-evening in Vienna to
ratify the measures at a full conference session at OPEC headquarters.
The session was to have been held earlier but talks were delayed by last
minute differences over the production baseline for Iran's planned cuts.
By early evening ministers said the differences had been cleared up.
''The deal is better than expected. Prices will eventually probably push
higher,'' said Nigel Saperia, managing director, of Bankers Trust
International in London.
''It's a pretty constructive deal,'' said Bob Finch, head of trading at
Vitol SA in London.
''But weakness from the United States is probably the reason for the
pressure this afternoon,'' he added.
The price slide may also reflect ''scepticism about compliance,'' said
Chris Bellew of brokers Prudential Bache in London.
Jeremy Hudson, oil analyst, at Salomon Smith Barney in London said ''the
market is in a 'show-me' mood.''
Oil prices are floundering well below last year's average of over $19
and petrodollar revenues have collapsed.
Prices were on an upward trend until last November when OPEC raised
output just as Asian demand was fading, oil storage tanks were swelling
and the West basked in unusually warm winter weather.
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.
Despite help from non-OPEC oil producers, some traders believe the cuts
may not be enough to turn the market around, given slowing global oil
demand growth.
OPEC's problem is that while world demand is still rising, the rate of
demand growth has slowed sharply this year.
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 50 percent of the world's extra oil consumption.
Meanwhile, rising Iraqi exports is also bound to work against efforts by
OPEC to soak up excess supply.
The U.N. Security Council voted last week to approve $300 million in
equipment to upgrade Iraq's dilapidated oil industry.
This will eventually lead to higher oil exports but the supplies are not
expected to reach Baghdad for several months.
Prices in dollars per barrel:
Jun 24 Jun 23
(close) close
IPE August Brent 13.61 13.92
NYMEX August light crude 14.56 14.52
Copyright 1998 Reuters Limited. |
