LONDON� The London-based Center for Global Energy Studies (CGES) has agreed that the Organization of Petroleum Exporting Countries must cut production before next March to avoid a collapse in crude prices.
The group's monthly oil report said Monday that assuming a normal winter, no disruptions to Iraqi oil exports, and a 3.2% growth in global oil demand, world oil prices would "slide." It predicted refineries would continue to work at full capacity to take advantage of high margins and rebuild product stocks, setting the stage for a saturated market that would lower prices.
For OPEC to bring the price of crude down within its $22-$28/bbl price band for the rest of the year, CGES said, the organization would have to reduce output by 1 million b/d by the second quarter.
"The industry needs to replenish stocks next year, which will inevitably lead to a price fall," said CGES. "When this happens will depend on the weather over the coming months, and how far prices will fall depends on OPEC's actions.
"Were OPEC to keep production constant at 29.3 million b/d throughout 2001, prices would fall heavily," it said, though not in the "spectacular manner" that looked likely last month.
CGES forecasts Brent crude would lose $10/bbl over the year without production curbs from OPEC, falling to $18.60/bbl in the fourth quarter of 2001 and averaging $23.10/bbl for the year.
Despite signals of a possible price fall�and the concerns expressed by several OPEC delegates at its Nov. 12 meeting in Vienna that production cuts would be necessary�CGES warned that such a "price slide will not occur soon enough to trigger cuts" by the next OPEC meeting Jan. 17.
It said the real trouble for consumer countries could be a long cold snap before yearend or an interruption of Iraq's oil exports, which would leave global stockcover at 84 days for the second year in a row.
"With OPEC some 3 million b/d higher than it was at the end of 1999, refiners ought to be able to begin to replenish stocks during the first quarter. However, in either of these cases OPEC would need to delay making any cuts to its output until the middle of the year.
"OPEC's real achievement in 2000 is to have prevented further global stockdraws, but stockcover has remained at low levels�hence the persistence of high prices," CGES added.
