Another very interesting WSJ article. Can't we just use up those 300 million missing barrels... Sounds like some people are starting to panic a little....
July 12, 1999
OPEC May Boost Oil Supply
Following Recent Price Surge
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
GENEVA -- For nearly a year and a half, oil markets have tried to
anticipate and measure supply cuts by OPEC members to shore up prices
that collapsed last year.
But the recent surge in crude-oil prices -- up about $3 a barrel in June
alone -- to levels last seen at the end of 1997 has prompted industry
experts to start looking at when and how the Organization of Petroleum
Exporting Countries will start supplying more oil.
Oil demand is rising. In its latest monthly report, the Paris-based
International Energy Agency expects demand to grow by 1.1 million
barrels a day this year to 75.1 million barrels a day -- as the U.S.
economy continues to be buoyant and Asia recovers. But oil output has
fallen -- to 72.3 million barrels a day in June -- as OPEC and other
producers continue to reduce supplies. The result: Once bloated
inventories are being reduced rapidly -- perhaps too rapidly and to levels
that might be too low for the coming, high oil-use winter season in the
Northern Hemisphere.
"Prices have not yet seen their highs for the year yet," says Larry
Goldstein, president of the New York-based Petroleum Industry Research
Foundation. He expects prices rising -- with usual corrective spells -- by
another $2 a barrel or more by September, when OPEC's oil ministers
next meet in Vienna.
At those levels -- more than $20 a barrel for the North Sea benchmark
Brent Blend, and well above $22 for the U.S. benchmark West Texas
Intermediate -- OPEC already would have gone past the upper end of the
target price range specified by Saudi Arabia, the world's largest exporter
and the organization's kingpin. But will others in OPEC trust the market
evidence and agree to revise their quotas upward in September to prevent
prices from rising too high?
So far, OPEC members that have spoken out don't favor an adjustment.
Oil ministers of Algeria and of Iran -- OPEC's second-largest exporter --
are convinced stocks haven't been reduced by enough to allow OPEC to
open its taps wider. Better, they say, to let current output restraints
continue until March, when the agreement expires and OPEC's ministers
meet again. Another major OPEC member, Venezuela also isn't
anticipating any quota increases until March.
Such restraint may be hard for some members of OPEC in the face of
rising prices. If OPEC can't agree in September on a controlled increase in
supply, some exporters may start producing more anyway and make
markets less predictable and more volatile than usual. The IEA sees the
prospect of rapidly falling OPEC compliance with output quota levels
unless, of course, the exporters' group raises these levels before year end,
the latter being a more plausible scenario in its view.
The IEA's reasoning is based on the rapidly widening gap between output
and demand. Projecting current trends, demand would exceed supply by
an exceptional 3.2 million barrels a day during the fourth quarter. Without
additional supplies, inventories would have to be used to meet demand.
But such a high level of inventory depletion has occurred once in the past
20 years -- during the very cold winter of 1987.
If supplies ever got that tight, it would set the stage for another
boom-and-bust cycle. Producers, in moving to take advantage of high
prices, could well flood markets as they have done before.
No wonder that even industry experts who say the current oil prices are a
bit over the top see the need for some relaxation of the OPEC quota limits.
Leo Drollas, deputy director of the London-based Centre for Global
Energy Studies, says OPEC should announce output increases to take
effect in March. "Otherwise, it will be very tight in the fourth quarter."
Already, he adds, prices have risen to levels that were expected much
later, or in the fourth quarter of the year.
On Friday, Brent Blend crude oil for August delivery closed at $18.51 a
barrel, up 27 cents, on London's International Petroleum Exchange. On
the New York Mercantile Exchange, light sweet crude for August delivery
rose 23 cents to settle at $19.94 a barrel.
Meanwhile, in commodities trading on Friday:
GRAINS: Excellent growing conditions in the U.S. Midwest, combined
with technical selling, pushed corn and wheat futures at the Chicago Board
of Trade to historic lows Friday, market watchers said. Corn prices are at
their lowest point since the mid-1980s, while wheat prices are the lowest
since 1977. July corn futures closed on a new contract low at $1.79 a
bushel, down 3.50 cents. September corn futures also closed on a
contract low at $1.8625 a bushel, off 3.50 cents. July wheat futures closed
on a new contract low at $2.33 a bushel, down 2.25 cents. September
wheat futures also lost 2.25 cents to close at $2.4375 a bushel. "We had
some very depressed prices," Victor Lespinasse, analyst with A.G.
Edwards on the CBOT floor, said. "The weather's still bearish." Corn is in
its critical pollination stage, and with normal temperatures and precipitation
levels, conditions have been optimal. The favorable weather has also
allowed winter wheat harvest to proceed, which has added pressure on
the market, analysts said.
COTTON: Renewed speculative and local selling sent futures lower on
the New York Cotton Exchange Friday, traders said. The benchmark
October contract fell 1.16 cents to close at 50.01 cents a pound. "The
problem with cotton is that there's an extremely weak demand, particularly
nonexistent from Europe, and the U.S. crop looks in pretty good shape,"
Ray Streker, a trader at commission house LFG Inc. in New York, said.
--Robin K. Taylor and Enza Tedesco contributed to this article. |
