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

To: Les H who wrote (27443)	8/10/1998 11:52:00 AM
From: Captain James T. Kirk	Respond to of 95453

Report finds OPEC failed to cut enough oil output; glut continues By Steve Liesman and Bhushan Bahree THE WALL STREET JOURNAL OPEC members just can't keep their big spigots shut. Data for July show that the Organization of Petroleum Exporting Countries fulfilled only half of the cutbacks it promised in June. The International Energy Association, which compiled the numbers, now says the current oil glut is unlikely to be mopped up this year, indicating that prices will remain low for some time to come. "It's difficult to foresee the excess stock problem resolved until well into 1999, at the earliest," the report says. WORSE, THE FOUR core OPEC nations that analysts believed were the most likely to stick to the cuts couldn't. Saudi Arabia, Venezuela, Kuwait and the United Arab Emirates all exceeded their target production levels along with every other OPEC-member country. FAILING TO CUT BACK In separate agreements in March and again in June, OPEC's 11 members (excluding Iraq) agreed to reduce daily production by 2.6 million barrels from February levels to counteract sinking oil prices brought on by slackening world demand. But the IEA says that the July cutbacks amounted to only 1.4 million barrels daily. Adding in production increases from Iraq and Indonesia, OPEC's production fell by only 360,000 barrels daily compared with June, or a fourth of the oil it had planned to take off the market. Mexico, Norway and Russia, non-OPEC members that had also promised to cut production, also missed their targets. To be sure, many analysts expected compliance in July to be below target. The June agreement was struck late in month, leaving little time to reduce the oil flow for the entire month. They suggest a truer measure of compliance will come in August. `KIND OF PERPLEXING' But Michael Rothman, senior energy analyst at Merrill Lynch in New York, says that with oil levels so low, compliance should have been far higher. "It's kind of perplexing that you have not had a greater degree of compliance, given how low oil prices are," he said. He said the world hasn't seen an oil glut this large since 1986, when prices last collapsed. The numbers suggest that OPEC may have to meet again before its regularly scheduled meeting in November to try to prop up markets. Oil prices were incrementally higher Friday. The September futures contract closed up four cents at $13.80 a barrel, as the Iraqi standoff with the United Nations over arms inspections counter balanced the bearish IEA report. One year ago, the same futures contract sold for $20.09. But for OPEC, the worse it gets, the worse it will get. Low compliance by members erodes trust and makes it less likely they will comply with existing agreements, says Gary Ross, chief executive officer of Pira Energy Group, a New York-based energy consulting company. That, in turn, undermines the group's ability to forge new cutback agreements. "It breeds an element of mutual suspicion," he says. Still, Mr. Ross is optimistic about higher oil prices. He says that if the IEA is correct in forecasting growing demand for OPEC oil in the third and fourth quarters, prices should gradually increase. But that is only if OPEC members begin complying with their agreements. The IEA expects demand for oil to grow by 1.6 million barrels a day to a world total of 76.3 million barrels daily. The bulk of this demand growth, or about 1.2 million barrels daily, would be met by rising supply from sources other than OPEC. That would leave only 400,000 barrels a day in increased demand that, for instance, could be met by an expansion in Iraqi production, or by drawing down stocks that have risen to new record levels this year and have weighed heavily on prices. Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved.