Brent crude oil price hits all-time low

The price of Brent crude oil has hit an all-time low, after a week in which the threat of renewed hostility between Iraq and the U.S. brought a brief respite for producers.

London's International Petroleum Exchange (IPE) said Brent crude oil for January delivery crashed to $11.20/bbl Nov. 18, breaking the previous low of $11.30/bbl on Oct. 5, 1988. After President Saddam Hussein kicked United Nations weapons inspectors out of Baghdad earlier in the month, the Washington and London governments began once again to amass military forces around the Persian Gulf.

The renewed political tension helped push Brent crude for December delivery to $12.42/bbl at the close of trading on Nov. 12, but once Saddam allowed inspectors to return, market fundamentals took over again as the driver of oil prices. At close of London trading on Nov. 17, Brent crude for January delivery stood at $11.72/bbl, while dated Brent was trading at only $10.62/bbl.

Meanwhile, markets looked to the Nov. 25 OPEC meeting in Vienna, where ministers are to discuss production quotas in place since their agreed cuts of 2.6 million b/d in June (OGJ, June 29, 1998, p. 28).

The latest estimates from Middle East Economic Survey show OPEC production was pegged back further still to a total of 26.85 million b/d in October, down from 27.27 million b/d in September. Although oil traders are waiting on the outcome of the OPEC meeting, there is apparently little expectation of further production cuts. Luis Giusti, president of Petroleos de Venezuela SA and one of the key instigators of the June deal, reportedly said on Nov. 17 that Venezuela "was not going to cut any more."

Geoff Pyne, oil market analyst at SBC Warburg Dillon Read, London, said that Saddam backed down in the face of a military threat three times in 1998 but in each case has been left with a residual political gain: "Each time the U.N. fails to take action only strengthens his position, whatever is promised at the time."

The critical U.N. Security Council meeting ended with a bland statement by the U.S. ambassador to the U.N. that the council called on Iraq to cooperate with inspectors, noted Pyne, and that the council accepted Iraq's decision to allow arms experts back.

"Meanwhile," said Pyne, "U.N. Sec. Gen. Kofi Annan has accepted congratulations by some Security Council members for again helping to defuse the crisis. That may be, but only at further cost to the U.N.'s credibility. Unsurprisingly, oil prices have relinquished all last week's gains. Yet it would be surprising if this were the end of this confrontation, as Iraq's record shows that it is certain to cheat again."