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

To: Wallace Rivers who wrote (58834)	1/21/2000 8:23:00 AM
From: Wowzer	Read Replies (2) \| Respond to of 95453

From the front page of this morning's WSJ: January 21, 2000 OPEC Cuts in Oil Production Raise the Threat of Shortages By STEVE LIESMAN Staff Reporter of THE WALL STREET JOURNAL The International Energy Agency warned that crude-oil supply cuts by Organization of Petroleum Exporting Countries have severely diminished world oil inventories. "According to the numbers, the market needs more oil now," said the IEA, formed by industrialized nations in the 1970s to coordinate an emergency response to oil shortages and monitor markets. David Knapp, editor of the IEA's Monthly Oil Market Report in Paris, said in an interview that shortages are possible this summer unless OPEC raises its production levels. "Some demand will be unmet," he said. Crude prices on the New York Mercantile Exchange surged more than $4 a barrel in the past week after OPEC members said they wouldn't boost output as expected in March, when the current supply-cutback agreement expires. In a series of reductions beginning in April 1998, OPEC together with non-OPEC members Mexico and Norway took 4.3 million barrels a day off world markets, reducing production about 6% against world demand of about 75 million barrels daily. In Nymex trading, West Texas Intermediate crude for February delivery closed at $29.68 a barrel, up 15 cents. Of course, the market could quickly be talked down by oil producers. In addition, the IEA, which often revises its preliminary data, said in its report that despite the inventory depletion, demand was still being met and it couldn't say definitively from where. But several oil analysts said there was little doubt that market fundamentals make a price of $30 a barrel almost a certainty and $40 a barrel a possibility. Although the U.S. and other economies have held up well in the face of rising oil prices, some think that could change with sustained prices of $30 a barrel and higher. "It's a prescription for disaster for the world's consuming economies," said oil economist Phil Verleger with the Brattle Group, an energy-consulting firm in Cambridge, Mass. He said world oil inventories, adjusted for consumption and economic growth, are the lowest in 20 years. With oil expenditures far lower now in industrialized economies than in the past 20 years, those countries have been able to continue growth despite prices around $25 a barrel. "Without doubt, you'll see oil prices eclipse $30 on a short-term basis," said Bruce Lanni, oil analyst at CIBC World Markets in New York. But he forecasts a pullback in crude prices during the second half of the year when OPEC is now predicted to boost supplies. Mr. Verleger adds that OPEC is giving Iraq a powerful economic weapon that it could use to try to force an end to its isolation. Iraq is an OPEC member but isn't subject to quotas because of United Nations sanctions, and Saddam Hussein has turned the Iraqi oil spigot off in the past to protest U.N. actions. Without an OPEC production increase, the cartel "is effectively handing Saddam Hussein veto power over world economic growth in 2001," Mr. Verleger said. If the fundamentals are as tight as analysts believe, consuming nations now must hope that Saudi Arabia remains true to its word that it won't allow prices to climb to a level that would cut off economic growth. That has some analysts thinking Riyadh could decide on it own, or in concert with several OPEC members, to ship more crude as soon as February. Without such a response, Larry Goldstein, head of the Petroleum Industry Research Foundation, a New York think tank, said that markets will draw an unprecedented 2.5 million barrels daily from oil inventories in the first quarter and three million barrels daily by the fourth quarter. The IEA typically doesn't predict prices, but it suggested OPEC is on the verge of overdoing the cutbacks just as it oversupplied the market in 1997 and 1998. "There is a danger that by not acting now, an opposite effect, ultimately as mutually unpleasant for producers and consumers, may now be in the offing," the report said. Write to Steve Liesman at steve.liesman@wsj.com