Oil prices began to decline in New York and London trading today as the start of the Organization of Petroleum Exporting Countries ministerial meeting in Vienna approached.
The fall was attributed largely to market jitters in advance of the meeting, at which OPEC is widely expected to agree to a production increase in order to alleviate market tightness. One market observer, however, attributed it to "technical selling" related to profit-taking.
By late afternoon, light sweet crude for October delivery was trading at $33.63/bbl on the New York Mercantile Exchange, down $1.76 on the day. The November contract stood at $32.80, down $2.74.
In London, the October contract for Brent was fetching $32.45/bbl on the International Petroleum Exchange at 6:15 p.m. GMT, a drop of $2.10 from the previous day's close. Brent rallied slightly to end the day Friday at $32.78, down $1.77.
Expected meeting outcome
While a vote in favor of an OPEC output increase is considered a certainty at the upcoming ministerial meeting, which starts Sunday, experts differ on how much effect the increase will have on oil prices.
OPEC Sec. Gen. Rilwanu Lukman told the BBC he believes market speculators and high product taxes in consuming countries are largely responsible for high oil prices. He doesn't think an OPEC output hike will bring prices down as much as consumers hope.
Neither does Raymond James & Associates Inc., which says, "...The true driver of oil prices over the next 12 months will be oil transportation capacity limitations...."
Utilization of the world's crude oil tanker fleet "has clearly 'maxed out' over the past 6 months," said the firm in a recent report.
"While most oil analysts�ourselves included�have focused primarily on OPEC production limits, the capacity of the world's oil tanker fleet has quietly become the most important factor in the oil supply-demand equation," said Raymond James. "Specifically, a fully utilized tanker fleet has several very important ramifications, including: 1) OPEC cannot deliver more oil to the market for 18 months; 2) OPEC exports may actually decrease over the next 6 months as tanker 'hoarding' reduces the transportation efficiency of the overall fleet; and 3) Oil prices are likely to move up steadily through the fourth quarter as demand outpaces available supply."
On the other side of the argument is Energy Security Analysis Inc., which agrees OPEC output isn't the only factor to be weighed but draws a different conclusion.
"The expected OPEC production increase is just one of several factors that will converge in the next 3 months to lower crude oil prices," says ESAI. Among other factors:
� Global oil demand will only grow about 1.0 million barrels per day in 2000.
� Gasoline demand will fall in the upcoming months.
� Secondary and tertiary product stockpiling, currently under way, has temporarily supported prices and will come to an end.
ESAI sees crude oil prices declining to the high $20/bbl-range in the next few months. �Thirty-five dollar per barrel crude oil is simply unsustainable over the next 3 months,� said the firm.
