Interesting WSJ article. It is the number 1 story on the front page. Hmmm where are those missing barrels or is it maybe the IEA doesn't have a handle on the supply number to begin with? Why didn't somebody tell me the IEA is a French outfit, that explains a lot (VBG)
October 12, 1999
Oil Supplies Seem Higher, Despite
Rising Demand, Production Cuts
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
GENEVA -- The International Energy Agency released data that draw a
puzzling picture of the world oil situation. And the ambiguity itself had
already resulted in a sharp decline on futures exchanges last week after a
steady rally this year that more than doubled prices.
Demand is rising, and members of the Organization of Petroleum Exporting
Countries have cut back their output, but stocks of oil in industrial
countries (members of the Organization for Economic Cooperation and
Development), the largest consumers, seem to have risen in the third
quarter, said the Paris-based IEA.
Coming hard on the heels of the sharp drop in
world oil prices last week, the IEA data
suggest that something somewhere is awry in
the murky world of oil: A whole lot of barrels aren't accounted for.
Where's the Decline?
That is because the global supply-and-demand balance for the third
quarter implies that stocks should have gone down by about 1.2 million
barrels a day. But there is no evidence of such a decline.
"There is a great deal of uncertainty surrounding stock changes," says
David Knapp, editor of the IEA's monthly Oil Report.
Of course, it could be that stocks of oil are being drawn down outside the
main consuming countries, or that demand growth and OPEC supply cuts
are working more slowly than expected through the supply chain. In any
case, Mr. Knapp said, "the longer [a stock drawdown] doesn't show up,
the stronger the decline" in industrial countries' stocks will be during the
winter months, when oil demand is greatest in the northern hemisphere.
Dangers of a Price Increase
The IEA official said demand is expected to exceed supply, assuming oil
exporters don't increase their output, by as much as three million barrels a
day in the fourth quarter, and as much as four million barrels a day in the
first quarter of 2000. And that doesn't take into account any supply
mishaps associated with any year-2000 problems.
All this suggests the danger of a
price spike, though OPEC could
easily take care of that by producing
more oil. "We think the fundamentals
are getting tighter," says Leo Drollas,
deputy director of the
London-based Centre for Global
Energy Studies.
So far, though, major OPEC
members have said they won't raise
their output, at least until their next
ministerial meeting in March. That is
in keeping with a formal decision made last month. But oil experts reckon
that OPEC's apparent unwillingness to consider opening the taps a little
wider is a bluff that may be called soon. Major OPEC members, they
figure, are unlikely to want to see exceptionally high prices, which would
trigger another boom-and-bust cycle. One way or another, goes this line of
thinking, these producing countries will put more oil on the market when
needed.
September Slip
In all, OPEC agreed to reduce its supply by about four million barrels a
day from the world oil market, which consumes about 75 million barrels a
day. The IEA on Monday said that OPEC members were largely meeting
their pledges of lower output, although their compliance had slipped in
September.
Such a slide was already in the wind last week, when surveys by Dow
Jones Newswires and others suggested that OPEC's members had raised
their output some. Indeed, Venezuelan Oil Minister Ali Rodriguez last
week reinforced expectations of even higher OPEC output when he
announced that he and his counterparts from Saudi Arabia, the world's
largest producer and exporter of oil, and Mexico, which isn't an OPEC
member, would meet in Riyadh, Saudi Arabia, in November.
The three countries instigated a series of output cuts by OPEC and some
other exporters after oil prices plunged in 1998 and continued at low levels
until February 1999. But Venezuelan officials, including the country's
president, had made known they were content with oil prices around $20 a
barrel and had reason to fret when they went well beyond that. "The
Venezuelans are saying that high prices are bad for us," says Roger Diwan,
managing director for markets at Petroleum Finance Co.,
Washington-based consultants.
On futures exchanges, oil prices had started testing the $25-a-barrel level
two weeks ago, with some in the market forecasting further rises unless
OPEC relented. Last week, the bubble burst as commodity funds and
others decided to cash in their positions. "The question now is, where is the
floor," says Mr. Diwan, who like others figures the market was overbought
and due for a correction.
On Monday, North Sea Brent crude for November delivery ended at
$21.23 a barrel, up 53 cents from Friday.
Write to Bhushan Bahree at bhushan.bahree@wsj.com |
