Bloomberg Energy
Mon, 26 Jul 1999, 10:25am EDT
7/26 7:50 Crude Oil Glut May Vanish by 3rd Qtr, Boosting Prices Further: Spotlight
By Ragulan Sriskanthan
Crude Oil Glut Almost Gone, Bringing Higher Prices (Update1)
(Adds oil price in 3rd paragraph.)
London, July 26 (Bloomberg) -- A yearlong glut of oil that
overwhelmed demand and sent prices plunging last year is
disappearing and could be gone by September, analysts said.
Brent crude oil has soared more than 80 percent this year to
a 20-month high as the Organization of Petroleum Exporting
Countries slashed output. If the group, which pumps a third of
the world's oil, keeps doing that, prices could rise another 25
percent by December, analysts said.
''The glut of crude should be over by the third quarter,''
said John Toalster, head oil analyst at SG Securities Ltd. ''We
could see oil prices at $22 to $24 if they keep up with full
compliance.'' Oil in London last traded at $19.40 a barrel.
OPEC's victory after years of ineffectiveness and squabbling
is its biggest success in boosting oil prices since the 1970s.
That's good news for Saudi Arabia, Iran and other OPEC members,
whose revenue plunged by about one-third, or $50 billion, to $104
billion last year because of low oil prices.
Rising oil prices, though, could rekindle inflation, and
they hurt motorists and businesses that use oil products, such as
airlines.
The rally has lifted oil companies' shares. Shell Transport
& Trading Co., which is the U.K. part of the world's second-
largest publicly traded oil company, Royal Dutch/Shell Group, has
risen 33 percent this year. BP Amoco Plc, Europe's second-largest
publicly traded oil company, has also surged 33 percent this
year. Exxon Corp. shares have risen 17 percent in the past five
months.
Inventories Dropping
Global oil inventories are dropping, consultants said. In
the U.S., the world's biggest oil user, inventories have fallen 3
percent since April, when oil producers deepened their production
cuts, according to inventory reports from the American Petroleum
Institute. Supplies are also about 3 percent lower than they were
a year ago, the reports showed.
The Centre for Global Energy Studies, a London consulting
group, estimates that there will be about 88 days worth of oil
stored around the world in September, down from 90 days at the
end of last year, when oil prices fell to a 12-year low of $9.55
a barrel. If supplies drop 7 percent to 82 days, the glut is
over, the CGES said.
World stockpiles last held 82 days worth of oil in 1997 when
oil prices in London averaged $19.34 a barrel and climbed as high
as $24.80.
The International Energy Agency, which studies oil markets
for most members of the Organization for Cooperation and
Development, expects the glut to be gone by the end of the year.
World oil supplies are expected to fall by 1.6 million barrels a
day during the third quarter of the year, the IEA said. In the
final quarter of the year inventories could fall by 3.2 million
barrels a day, the second-biggest quarterly stockpile decline in
the past 20 years, the IEA said.
Nine analysts polled by Bloomberg predicted that on average
oil prices in London would reach $21 a barrel by the end of the
year. That would mark the highest price since October 1997.
''It looks like the glut is almost over,'' said Peter
Gignoux, head of oil brokerage at Salomon Smith Barney.
Fraud?
To be sure, some oilmen say the statistics lie, and that
companies are intentionally understating inventories to fuel the
perception of lower supplies and reinforce the rally in crude
oil. U.S. oil supplies stored at Cushing, Oklahoma, the nation's
oil-storage capital, are brimming.
''It's out-and-out fraud,'' said Jim Stewart, the director
of the Gulf Coast Business Unit for Plains Resources Inc., one of
Cushing's biggest storage companies. ''The numbers, in our
opinion, do not appear accurate.''
In the U.K., rising oil prices are putting manufacturing
companies under pressure to increase their retail prices, a move
that would push up inflation. Figure from the Office for National
Statistics showed the prices manufacturers pay for fuel and raw
materials rose 0.6 percent in June, twice as much as analysts had
expected.
Driving Cost
Motorists have also been counting the cost of higher crude
oil prices, with U.S. gasoline prices climbing to a 20-month high
of $1.169 a gallon this month, according to the U.S. Department
of Energy. U.S. prices have risen 29 percent from 90.7 cents a
gallon in February, the lowest average price since DOE surveys
began in 1994.
Since the tax on gasoline in the U.S. is among the lowest
tax on gasoline anywhere in the industrialized world,
fluctuations in the price of crude oil have more effect on U.S.
gasoline prices at filling stations than the retail price of
gasoline in most other developed countries.
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