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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: BigBull who wrote (49575)	8/19/1999 11:14:00 PM
From: Tomas	Respond to of 95453

OIL PRICES MAY RISE FURTHER - Business Recorder, Aug.19 Economists believe that oil prices would rise substantially following the decision of the Cabinet to link the prices of petroleum and petroleum products with international prices. The reason behind this assumption is that the oil prices in international market are on successive rise as a result of close cooperation of Saudi Arabia, Iran and other oil producers in West Asia. Additionally, there has been a substantial decrease in the production of the non-Opec oil leading to the consolidation of the rise in the crude oil. Prices have rebounded after being stuck at almost rock-bottom levels over the past year and more and there is a likelihood that they would go even higher as stocks elsewhere in the world get depleted. These oil producing countries have to resist the temptation to breach the production-restriction agreement they signed earlier in the year because otherwise it might mean the end of Opec as a price fixing mechanism. When the 10 members -- countries still effectively taking part in the Opec (the exception being Iraq which is under a separate sanction-controlled oil export regime -- agreed to reduce their respective production quotas earlier this year, it was an even chance that this agreement would go the way of previous ones. Some of the Opec member-states are notorious for cheating on their quotas as soon as production-cut agreements begin to be effective in pushing up prices. There was not great optimism that the latest production cut agreement, which came into effect from April 1, would be observed any more faithfully, or last any longer than those which have been made in the past. One factor which made this year's production-slashing agreement appear more viable than previous ones was that it had been made after Saudi Arabia and Iran, the two biggest Opec producers, had reconciled their differences. Yet, with a mountain of stocks available in the depots world-wide and doubts about the speed of East Asian economic recovery there was no great optimism that prices would recover very significantly. As per this year's agreement, the Opec decided to slash over 2 million barrels per day (barrels-per-day) from their total production so that by June the total output would be pegged down at 22.975 million barrels-per-day. According to June figures, the Opec production was at 23.25 million barrels-per-day, just 275,000 barrels-per-day in excess of the agreed total. The production cut and other favourable factors have pushed prices from the low $ 10 a barrel price reached in late 1998 to over $10 a barrel for the Benchmark Brent crude. This kind of a price has not been seen since September 1997 when oil prices began sliding rapidly after the East Asian economic slump. Prices are expected to rise further for several reasons. Besides the unexpected pace of the East Asian recovery, world-wide stocks are also diminishing faster than expected. Non-Opec producers, operating in regions where the cost of production is much higher, have also been discouraged by the low prices prevailing through the year and have slashed production by over 200,000 barrels-per-day. Predictions for the world-wide demand in 2000 paint an even rosier picture for the oil producers. Demand is expected to increase by at least 1 million barrels-per-day (reaching a total of 77 million barrels-per-day) while some assessments state that it could reach as high as 1.5 million barrels-per-day, or even higher. By the year 2010, the US Energy Information (EIA) predicts world oil demand will increase to about 980 million barrels-per-day. Non-Opec producers, who had cut down investments in up-stream projects on account of low prices, are not expected to be in a position to achieve their 60 percent share of the increased demand. If winter in the northern hemisphere turns out too be severe, it would be even better news for the oil producers. With the price situation so rosy, there is an incentive for individual Opec member-states to surreptitiously push up their share of the production. The low prices over the last year have seriously damaged their revenues and there is a great temptation to make use of this golden opportunity. Oil prices sped to new 22-month highs on good demand for physical crude and projections of faster growth in the world's thirst for oil next year. Oil has rocketed a full $1 a barrel in the space of a week amid fresh evidence of restraint by Opec producers, strong US products market and improving refinery profit margins. The market drew more strength from International Energy Agency estimates that world oil demand growth would quicken markedly next year after slow increases in the past two years. The Paris-based IEA said in its monthly Oil Market Report that the nascent economic recovery in Asia should continue to gather momentum and non-Opec supply growth will be sluggish. A good physical demand for crudes in Europe, triggered by an upswing in refinery profit margins, also helped underpin the market. The IEA said initial estimates for demand in 2000 showed growth of 1.8 million barrels a day (barrels-per-day) to 77 million, double the 900,000 barrels-per-day increase this year. Non-Opec supplies would rise only modestly next year. Despite Brent's strength, a slowing momentum of business and light trading volumes might amount to a technical warning that a correction could be due. But overall sentiment remains firm following latest indication that the Organisation of the Petroleum Exporting Countries is keeping a tight rein on production. The Opec's compliance with its production cuts was 91 percent in July from 87 percent in June. That reinforced the view that Opec was keeping discipline after it decided to cut production sharply in April through to March next year. The need for Opec crude would jump to 28.9 million barrels-per-day in 2000 compared with current output of just over 26 million barrels-per-day.